GBP/JPY faces some selling pressure below 189.00 on dovish sentiment around BoJ

• GBP/JPY attracts some sellers near 188.70 in the first European session on Monday, down 1.27% on the day.
• A rebound in Japanese second-quarter GDP bolsters the case for a rate hike by the BoJ.
• UK S&P Global/CIPS Manufacturing preliminary PMI for August and Japanese national CPI for July will be the highlights this week.

The GBP/JPY cross is weakening around the 188.70 month mark in early European trading. Comforting sentiment around the Bank of Japan (BoJ) and stronger second-quarter Japanese Gross Domestic Product (GDP) data are supporting the Japanese yen (JPY) rally and pulling the cross lower.

Investors appear to be optimistic that Japan’s better Q2 GDP report last week would convince the Bank of Japan (BoJ) to raise interest rates further, boosting the JPY overall. Japan’s economy grew 0.8% quarterly in Q2, beating the market estimate of 0.5%.

Kazutaka Maeda, an economist at the Meiji Yasuda Research Institute, said the reports were simply positive overall and “support the BoJ’s view and bode well for further rate hikes, although the central bank would remain cautious as the last rate increase caused a sudden rate increase. top of the yen.”

Japan’s Economy Minister Yoshitaka Shindo said last week that the economy is expected to recover gradually as wages and incomes improve, adding that the government will work closely with the BoJ to implement an accommodative monetary policy going forward.

On the other hand, encouraging UK retail sales data on Friday dampened bets for a second consecutive interest rate cut from the Bank of England (BoE). This, in turn, could limit the British pound’s (GBP) downside. However, UBS analysts expect another rate cut by the BoE in November. “We expect another 25 basis point cut in November, with more to come in 2025,” UBS analysts said.

Traders will watch the UK S&P Global/CIPS Manufacturing Purchasing Managers’ (PMI) preliminary PMI (PMI) for August and Japan’s national CPI for July for further impetus, due on Thursday and Friday respectively.