GBP Struggles Post-UK CPI, USD/JPY Tags Fresh ’23 High

GBP finds itself at the foot of the G10 FX table after the softer than expected UK CPI data pushed markets into pricing a near coin toss re: the odds of a BoE hike tomorrow.

• Terminal policy rate pricing has been trimmed to reflect 25bp of tightening i.e. one further hike from current rate levels signals the end of the tightening cycle.
• Meanwhile, most of the sell-side still leans towards a hike at tomorrow’s event, albeit with heavy caveats applied.
• GBP has recovered from session lows.
• USD/JPY showed to a fresh YtD peak above Y148.00 in early London hours, dealing as high as Y148.17.
• A quick reminder that top Japanese FX diplomat Kanda warned that the relevant Japanese authorities are watching FX markets with urgency, stressing that they will take appropriate steps if required.
• Pre-Kanda, we saw U.S. Tsy Secretary Yellen note that she understands the potential need to smooth out JPY volatility, in what was deemed a tacit approval of any required intervention on the part of the Japanese authorities.
• Higher beta FX (Scandis and Antipodeans) sit at the top of the G10 FX table, albeit within contained ranges, with global equity benchmarks on the front foot.
• The FOMC decision (no move in rates expected, with focus on rhetoric & SEP) dominates the global risk docket today.