GBP/JPY discovers support near 167.30 as attention shifts to UK inflation and BOE policy

After falling to about 167.30 in the early Asian session, the GBP/JPY pair is assessing demand. The cross experienced selling pressure after failing to surpass the 168.00 round-level barrier. In the meantime, the GBP/USD pair has retraced in anticipation of the Federal Reserve's (Fed) monetary policy, reflecting a cautious market sentiment.

The cross is predicted to recover strongly as the policy divergence between the Bank of England (BOE) and the Bank of Japan (BOJ) is anticipated to widen further following the December 15 interest rate hike by the United Kingdom central bank.

According to a Reuters poll on interest rate hike estimates for the Bank of England, the central bank will add another 50 basis points (bps) next week, bringing borrowing prices to 3.50 percent, despite the recession. In order to bring inflationary pressures in the United Kingdom to an end, further policy tightening is required.

But before that, markets will focus on Wednesday's inflation statistics for the United Kingdom. According to forecasts, the annual inflation rate for November is likely to rise to 11.5% from 11.1% previously. The recent increase in food price inflation, driven by the food supply issue amid a labor shortage and increasing input costs, has increased expectations for the headline inflation rate.

As a result of a reduction in Gross Domestic Product (GDP) figures, the possibility of a decline in inflation has emerged in Tokyo. A decrease in demand never causes an increase in the price increase index. Bank of Japan (BOJ) Governor Haruhiko Kuroda believes that the BOJ would maintain its current easy monetary policy until inflation reaches 2%, even if wages increase by 3%.