GBP/JPY tumbles below 165.50 as firmer UK food inflation dampens economic projections

• GBP/JPY has declined firmly below 165.50 as UK food inflation has soared.
• A significant jump in UK inflation has cemented a bleak winter season ahead.
• The speech from BOJ Kuroda will provide fresh cues on the interest rate and inflation guidance.

The GBP/JPY pair has dropped sharply below 165.50 firmly after failing to overstep the critical hurdle of 166.50 in early Tokyo. The Pound Sterling is facing immense heat and has tested Wednesday’s low at 165.50 as a significant surge in the United Kingdom's food inflation rate has dampened the sentiment of households.

The UK food inflation has surged to a 45-month high at 12.4% in November, higher than the prior release of 11.6% in October. A fresh impulsive move in the food category has weakened projections for the Christmas season ahead. Higher food prices are expected to leave households with lower earnings for disposable, which could hit their Christmas purchases.

As per the Financial Times, this is the biggest inflation rate in the food category since records began in 2005, and higher than overall shop price annual inflation, which was a record 7.4% in November, up from 6.6% in October.

While responding to the spiraling cost of food products, British Retail Consortium (BRC) chief executive Helen Dickinson said: “Winter looks increasingly bleak as pressures on prices continue unabated.”

Meanwhile, UK’s new freeport regime is hurting the European Union as the latter believes that the Freeport regime could attract fresh investments. The Freeport regime could provide the UK benefits of tax breaks and simplified customs controls ahead.

On the Tokyo front, investors are awaiting the speech from the Bank of Japan (BOJ) Governor Haruhiko Kuroda, which is due on Friday. The speech from Haruhiko Kuroda will provide fresh cues for monetary policy action ahead. Apart from that, inflation guidance will also be crucial as Tokyo's inflation surged dramatically in October.