GBP/JPY slips closer to 186.00 ahead of UK CPI

• GBP/JPY is under renewed selling pressure amid JPY strength.
• Hawkish BoJ expectations coupled with cautious market sentiment support the JPY.
• Traders are now looking to UK CPI for near-term boost ahead of the BoE and BoJ.

The GBP/JPY cross is struggling to capitalize on the two-day recovery from the vicinity of a one-month low retested earlier this week and is meeting fresh supply during the Asian session on Wednesday. Spot prices are again falling closer to the 186.00 mark in the last hour amid fresh buying around the Japanese yen (JPY), although downside looks limited ahead of the release of UK consumer inflation figures.

Britain’s consumer price index (CPI) is expected to rise 0.3% in August, after a 0.2% fall in the previous month, and the annual rate is seen holding it at 2.2%. Meanwhile, the core CPI – excluding the volatile components of food, energy, alcohol and tobacco – is expected to rise to an annual rate of 3.5% from 3.3 in July. Against the backdrop of a slowdown in UK wage growth and flat GDP for the second straight month in July, a softer CPI print will raise bets for more interest rate cuts by the Bank of England (BoE) and undermine the pound sterling (GBP).

Conversely, the market’s reaction to a stronger report is more likely to be short-lived amid Bank of Japan (BoJ)-led JPY strength. Recent comments from a number of BoJ officials have suggested that the Japanese central bank will raise interest rates again by the end of this year. This, along with market jitters ahead of this week’s key central bank risks, benefits the JPY’s safe-haven status and puts downward pressure on the GBP/JPY cross. This, in turn, favors bear traders and supports the prospects for another bearish move throughout the day.

Meanwhile, market focus remains on Thursday’s BoE decision, which will be followed by the latest BoJ policy update on Friday. This will play a key role in influencing the GBP/JPY crossover and help determine the next stage of a directional move. Therefore, it will be prudent to wait for a sustained break and acceptance below the 184.50 horizontal support before positioning for a resumption of the previous downtrend seen in the last two weeks or so.