The British pound held steady against the Japanese yen on Wednesday, with the GBP/JPY cross trading around the 214.35-214.40 zone during early European hours, up nearly 0.10% on the day. The pair found support from a combination of a softer US dollar and persistent yen weakness, reinforcing a near-term bullish outlook despite headwinds for sterling.
Yen Under Pressure Amid Geopolitical Risks
The Japanese yen remained under pressure against major currencies as ongoing tensions in the Middle East, particularly around the Strait of Hormuz, continued to disrupt shipping activity. Iran's restrictions and the US naval blockade of Iranian ports have sharply reduced traffic through the strategic waterway, keeping geopolitical risks elevated. This backdrop undermined demand for the safe-haven yen, even as the Bank of Japan (BoJ) signaled further monetary tightening.
BoJ Deputy Governor Himino Ryozo reiterated on Tuesday that the central bank would continue raising interest rates based on economic activity, inflation, and financial conditions. However, hawkish remarks from Governor Kazuo Ueda failed to boost the yen, which weakened against all major peers. The euro extended its gains against the yen for a fourth straight session, climbing above 185.46 for the first time since suspected intervention on April 30. Speculation about another intervention by Japanese authorities did little to stem the yen's decline.
For more on how Strait of Hormuz tensions are affecting currency markets, see Forex Markets on Edge as Strait of Hormuz Tensions Offset US-Iran Diplomatic Hopes.
UK Inflation Data Limits Pound Gains
On the sterling side, gains were capped after UK Consumer Price Inflation (CPI) data for April showed an unexpected slowdown to 2.8% year-on-year. The softer reading pushed back expectations for an immediate interest rate hike by the Bank of England (BoE), creating some downward pressure on the pound. Traders now see a reduced likelihood of near-term tightening, which limited the upside for GBP/JPY despite the yen's weakness.
Political Uncertainty Adds Headwinds
Domestic political developments also weighed on the pound. Growing uncertainty and increasing calls for Prime Minister Keir Starmer to step down prevented GBP bulls from placing aggressive bets. The combination of slowing inflation and political tensions could limit additional upside for sterling, even as the broader bearish sentiment on the yen continues to support the cross.
For context on how geopolitical events are influencing broader markets, see Silver Drops to $74.70 as Gulf Tensions Stoke Inflation Fears and Rate Concerns.
Outlook
Despite the headwinds for the pound, the prevailing weakness in the yen suggests the GBP/JPY pair could continue to trend higher in the near term. The cross remains above key support levels, and any further escalation in Middle East tensions or BoJ inaction could provide additional upside. However, traders will watch for any intervention by Japanese authorities or shifts in BoE policy expectations that could alter the trajectory.
For a broader view of how Strait of Hormuz developments are impacting risk sentiment, see Dollar Retreats as Hormuz Talks Ease Safe-Haven Demand; Oil Rebounds.
This article is for informational purposes only and does not constitute financial advice.
