Dollar pairs are currently awaiting the report on inflation growth in the United States, which will be released at the start of the American session. Therefore, despite the decline in the U.S. dollar index, opening trading positions against the greenback, at the moment, is still risky. Key data in the field of American inflation can reshape the fundamental picture of the day, especially in anticipation of the June meeting of the Federal Reserve. That is why it is best to observe dollar pairs from the sidelines today.
However, it is possible to consider some cross pairs not tied to American macroeconomic statistics. Among the main crosses, the GBP/JPY pair should be highlighted, especially in light of the upcoming events. The next Bank of England meeting will take place next week (June 22), while the Bank of Japan will hold its meeting this Friday. These events will significantly affect the GBP/JPY pair: either buyers will resume the upward trend, or sellers will organize a powerful downward counterattack. Preliminary fundamental analysis favors the British currency.
Labor market: an ally of the pound
Today, key data on the UK labor market were released, which turned out to be in the "green zone," exceeding expectations. This release can play a decisive role for the members of the English regulator, although for a complete picture, the missing piece is data on the growth of the British economy. We will learn the report on the growth of the UK's GDP for April tomorrow, but even with the available data, it is possible to assume a hawkish outcome of the Bank of England's June meeting. While there are no preconditions for tightening rhetoric (let alone any decisions) from the Japanese regulator.
But let's start with the positive British data. The unemployment rate in the UK, according to general forecasts, was expected to rise to the 4.0% mark (in which case the rise would have been recorded for the third consecutive month), but the indicator unexpectedly demonstrated a downward trend, dropping to the target of 3.8%.
Another component of the report pleasantly surprised: the indicator of the increase in the number of claims for unemployment benefits. For two months—in March and April—this indicator remained above zero, showing confident growth. And according to the forecasts of most experts, in May, it was also expected to grow significantly by 22,000. However, contrary to expectations, the indicator collapsed into negative territory, marking a value of -13,000.
But the most important aspect is wages. The inflationary indicator surpassed even the boldest predictions of analysts. Thus, excluding bonuses, the level of average earnings increased by 6.5%, with a forecasted growth of 6.1%. Including bonuses, the indicator also surged, marking a value of 7.2% (with a forecasted growth of 6.9%), the highest growth rate since July 2021.
The "salary" indicator needs to be considered from two aspects. Firstly, through the prism of the latest data on inflation growth in the United Kingdom. Secondly, in the context of the Bank of England's June meeting. Recall that according to the latest data, the overall consumer price index in the UK jumped to 1.2% on a monthly basis, with a forecasted decline to 0.8%. The core consumer price index, excluding energy and food prices, contrary to predictions of a decrease to 6.1% YoY, surged to 6.8% immediately.
It is obvious that today's release will be considered by the members of the English regulator in connection with the inflation report. And considering the previous rhetoric of Bank of England representatives, it can be assumed that the central bank will decide on another round of rate hikes next week. And although the accompanying statement of the bank in May had a "conclusive" character, the central bank unambiguously indicated that it would further tighten monetary policy if inflation gains momentum. As we can see, these concerns have been largely justified: the latest releases support a hawkish decision.
Japanese "doves"
On the other hand, the Bank of Japan seems to be in no hurry to calibrate its policy. At its previous meeting in April, the Japanese regulator declaratively announced a review of its policy. However, the expected timeline for the review turned out to be much longer than anticipated—from 12 to 18 months.
The new Governor of the Bank of Japan, Kazuo Ueda, stated that all changes would be extremely smooth and gradual. Taking into account subsequent comments from many representatives of the Japanese central bank, it can be concluded that the regulator will keep all parameters unchanged at the June meeting. According to some experts, the Bank of Japan will use the entire declared 18-month duration for policy review, and the first verbal changes (i.e., changes in the rhetoric of the accompanying statement) will appear closer to autumn.
Conclusions
Considering the ongoing decoupling of the policies of the Bank of England and the Bank of Japan, long positions on the GBP/JPY pair still look attractive. The cross has been within an upward trend since mid-March. During this time, the price has risen by almost 1700 pips. Currently, buyers are testing the resistance level at 175.50, which corresponds to the upper line of the Bollinger Bands indicator on the daily chart. If traders surpass this target, the next target for the upward trend will be the 176.70 level, which is the upper line of the Bollinger Bands on the weekly chart.