GBP/JPY remains sideways around 181.00 as investors baffle about BoE’s interest rate peak

• GBP/JPY consolidates around 181.00 as investors await more cues about the interest rate peak in the UK.
• Andrew Bailey conveyed that interest rates will remain “sufficiently restrictive for a sufficient period”.
• In the monetary policy meeting, the BoJ provided more flexibility to the YCC.

The GBP/JPY pair remains back and forth around 181.00 after a recovery move from 180.50 in the London session. The asset recovered confidently as the Bank of England (BoE) raises interest rates by 25 basis points (bps) to 5.25% on Thursday.

This was the 14^th consecutive interest rate hike by the BoE and interest rates at 5.25% are highest in the past 15 years. BoE Governor Andrew Bailey kept the door open for further policy tightening as the victory against stubborn inflation cannot be announced now. Out of the nine-member Monetary Policy Committee (MPC), BoE policymaker Swati Dhingra favored an unchanged interest rate decision. BoE Haskel and Mann supported for 50 bps interest-rate hike.

Andrew Bailey assured that inflation will come down to 5% in October as the labor market has started releasing heat and food inflation has peaked now. He further added that the option of a 50 bps interest-rate hike was not in the picture and the central bank will keep interest rates “sufficiently restrictive for a sufficient period” so that inflation returns swiftly to 2%.

This week, a survey from Citi/YouGov showed that 12-month forward consumer inflation expectations dropped sharply to 4.3% vs. former expectations of 5.0%.

Meanwhile, discussions over an exit from the decade-long ultra-dovish monetary policy by the Bank of Japan (BoJ) kept the Japanese Yen solid. In the monetary policy meeting announced last week, the BoJ provided more flexibility to the Yield Curve Control (YCC).