GBP/JPY sustains above 180.00 as interest rate peak by BoE seems around 6.5%

• GBP/JPY has sustained comfortably above 180.00 as BoE is preparing for a consecutive fat rate hike.
• Weak UK factory activity data failed to impact the rally in the Pound Sterling.
• Japan's top currency diplomat Masato Kanda cited that deflationary norms may be changing.

The GBP/JPY pair is holding its auction above the psychological resistance of 180.00 in the London session. The cross picked strength after a five-day losing streak around 179.50 as investors expect that the Bank of England (BoE) is preparing for a consecutive fat rate hike in August.

Headline Consumer Price Index (CPI) in the United Kingdom seems sticky at 8.7% while core inflation that excludes volatile oil and food prices has printed a fresh high of 7.1%. Tight labor market conditions have started releasing heat due to higher interest rates but the journey towards achieving 2% inflation is far from over.

BoE Governor Andrew Bailey has already pushed interest rates to 5% and more interest rate hikes are in the pipeline. Money markets are anticipating that the interest rate peak by the BoE will be around 6.5%.

Meanwhile, weak UK factory activity data failed to impact the rally in the Pound Sterling. Manufacturing Production reported a light pace in contraction at 0.2% vs. the consensus of -0.5%. Meanwhile, the economic indicator remained between the consensus of -1.7% and the prior release of -0.6% at -1.2%. Monthly Gross Domestic Product (GDP) has posted a contraction by 0.1% while investors were anticipating a contraction by 0.3%.

UK Finance Minister Jeremy Hunt said that “while an extra Bank Holiday had an impact on growth in May, high inflation remains a drag anchor on economic growth.”

On the Japanese Yen front, Japan's top currency diplomat Masato Kanda cited that deflationary norms may be changing. This must be the outcome of the rising contribution of demand-driven aspects in inflationary pressures. Kanda added the government is closely watching FX market moves.