Sterling continued its slide as hawkish BoE expectations eased

As market expectations for future aggressive rate hike from the BoE relatively disappeared post the UK’s dropping inflation, the Pound Sterling kept falling versus the US dollar. The inflated British pound was greatly impacted by the US dollar, which was also participating in an independent surge.

As the money markets reduced their expectations for BoE rate hikes, GBP/USD fell to a low of 1.2839. The possibility of UK interest rates increasing above 6% is now most certainly eliminated. At the time of writing, the pair slid a little bit higher to 1.2864.

A base and subsequent rise higher could be seen as the price dropped into a demand zone. However, the trendline support and a 78.6% ratio are also within reach. On a different front, the GBP/JPY pair is trading in the red at 180.20, registering its fourth straight day of losses. In June, export growth in Japan was less rapid than anticipated, and the GBP’s growth is constrained by dovish expectations on the BoE.

As markets remain cautious ahead of Japanese inflation data and the corresponding Bank of Japan (BoJ) decision next week, the GBP/JPY declines below 181.0 on Thursday. On the other hand, the weak inflation estimates have made it difficult for the pound to attract buyers.

Investors await Japanese inflation data despite lower UK inflation. Continual bearish wagers are a drag on the GBP, although improving UK yields could curtail its losses. Following weak inflation data, the likelihood of a 50-basis point (bps) increase decreased to around 45%, and investors now expect a terminal rate of 5.75% rather than 6.50% last week. This caused the British yield to decline to its lowest levels since mid-June. However, the rates recovered, supporting the GBP somewhat.

Japan’s Ministry of Finance released subpar June Trade Balance figures. While imports fell 12.9% YoY, a greater reduction than the projected 11.3%, exports climbed by 1.5% YoY, less than the 2.2% anticipated. Policymakers are unlikely to switch to a contractive monetary policy, which might exacerbate the crisis, while exports are declining. Despite markets discounting the BoJ’s decision to maintain its policies in place next week, investors will be paying close attention to the inflation numbers from Japan that will be announced during the Asian session on Friday. The headline Consumer Price Index (CPI) is forecast to have grown to 3.5% YoY in June, while the Core measure is anticipated to have somewhat slowed to 4.2%. It’s crucial to remember that BoJ Governor Ueda said the bank would alter its direction.