- GBP/JPY swiftly dropped to around 188.40 after two BoE MPC members supported large interest rate cuts.
- The BoE anticipates a temporary surge in inflation driven by higher energy prices before inflation reverts to its 2% target.
- BoJ's Tamura projects that interest rates will climb to at least 1% by the second half of the fiscal year starting in April.
During Thursday's North American session, the GBP/JPY pair suffered a sharp sell-off, plunging to nearly 188.40 - the lowest level in two months - after the Bank of England slashed its key borrowing rate by 25 basis points to 4.5%.
The Bank of England (BoE) was widely expected to cut rates with an anticipated 8-1 vote split, yet the policy meeting revealed that all Monetary Policy Committee (MPC) members backed a rate reduction, with two members even advocating for a larger-than-usual 50-bps cut.
Market participants interpreted this unanimous support for significant rate cuts as a dovish signal regarding the monetary policy outlook. Despite this, BoE Governor Andrew Bailey signaled a cautious and gradual approach to further easing, noting that the United Kingdom's headline Consumer Price Index (CPI) might temporarily accelerate to 3.7% before resuming its descent toward the 2% target.
Although Bailey did not commit to a preset rate-cut path, traders have raised expectations that the BoE could implement three cuts this year - up from the two fully priced in before the meeting. Meanwhile, the Japanese Yen (JPY) has been performing strongly as growing expectations mount that the Bank of Japan (BoJ) will raise rates further this year. BoJ board member Naoki Tamura bolstered hawkish sentiment by stating that interest rates should rise to at least 1% by the second half of the fiscal year starting in April, based on anticipated broad-based pay increases that could boost price pressures.
