Image Source: Unsplash
 

• GBP/JPY faces challenges as US President-elect Donald Trump's renewed tariff threats have dampened market sentiment.
• The Pound Sterling may gain ground due to the hawkish mood surrounding the BoE policy decision next month.
• BoE Deputy Governor Lombardelli requires more evidence of easing inflation before supporting another rate cut.

GBP/JPY continues its losing streak for the fifth successive session, trading around 191.10 during the European hours on Wednesday. Investors will focus on the Tokyo Consumer Price Index (CPI) data for October, which will be published on Friday.

The downside risk for the GBP/JPY cross appears due to the increased risk aversion following US President-elect Donald Trump's renewed tariff threats, which have dampened market sentiment, contributing support for the safe-haven Japanese Yen (JPY).

However, the upside of the JPY could be retrained as traders dial back expectations for the Bank of Japan (BoJ) to hike interest rates in December. Market participants expect that political uncertainty in Japan limits BoJ’s potential for raising its key borrowing rates further.

Last week, BoJ Governor Kazuo Ueda hinted last week at the possibility of another interest rate hike as early as December. Japanese Prime Minister Shigeru Ishiba said on Tuesday that he would ask companies to implement significant wage hikes at the annual "Shuntō" negotiations next spring.

The downside of the GBP/JPY cross could be limited as the Pound Sterling (GBP) receives support from reduced expectations that the Bank of England (BoE) will cut interest rates in December. Most BoE policymakers favor a gradual approach to easing monetary policy. Bank of England’s Financial Stability Report will be eyed on Friday.

BoE Deputy Governor Clare Lombardelli stated on Tuesday that she needs to see further evidence of cooling price pressures before endorsing another interest rate cut. Lombardelli also noted that US trade tariffs pose a potential risk to economic growth, though it is too early to fully gauge their impact.

More By This Author: