GBP/JPY to 150?

GBP/JPY to 150?

GBP/JPY to 150?

The Bank of England’s monetary policy announcement is tomorrow and we believe the central bank will be hawkish. Although this morning’s U.K. labor market report was mixed with employment falling for the first time in more than a year for the three months to October, average hourly earnings rose strongly and the unemployment rate held steady at 4.8%. More importantly, the following table below highlights the widespread improvements in the U.K. economy since their last monetary policy meeting. Retail sales rose strongly in October, wage growth accelerated, consumer prices are on the rise and the PMI composite index increased, reflecting stronger economic activity. Stocks have also performed extremely well, which should give Governor Carney the confidence to tout the improvements in the U.K. economy and reiterate the central bank’s warning that they have only limited tolerance for an overshoot of inflation. At the same time, the U.S. dollar soared on the back of today’s FOMC rate decision. No one was surprised by the Fed’s 25bp rate hike but the dot plot forecast shows policymakers looking for 3 rate hikes in 2017. This view is more aggressive than the 50bp move they forecasted back in September and single handedly sent USD/JPY above 116. Fearing that Janet Yellen would downplay this forecast, traders refrained from driving the pair above 117 until after the Fed Chair began to speak and when she called the extra quarter point hike a “very modest adjustment” they realized that she was not going to refute this view. This very line along with her confidence in the economy sent the U.S. dollar and Treasury yields sharply higher. So from a technical and fundamental perspective, we believe GBP/JPY is headed much higher.

Taking a look at the GBP/JPY chart, it is already trading near a 6 month high. There’s a little bit of Fib resistance right above current levels near 147.25 but the main resistance level is just under the 100-month SMA at 149.95.

Chart Of The Day

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