Yen rises on BOJ bets; Sterling falls on weak GDP

Yen surges to 4-week high amid BOJ rate hike speculation

The Japanese yen extended its rally, hitting a four-week high as markets weigh the Bank of Japan's (BOJ) potential policy shift. BOJ Governor Kazuo Ueda reinforced the possibility of a rate hike at the upcoming policy meeting, signaling a calculated effort to prepare markets for a departure from ultra-loose monetary policy.

Market sentiment has shifted notably in recent days. While earlier polls suggested limited expectations for a January hike, recalibration is underway as investors respond to Ueda’s remarks and positive wage growth trends. However, analysts caution that the yen’s recent gains against the dollar may remain corrective without broader confirmation of a sustained monetary policy reversal.

Further supporting the yen, the US dollar softened following an unexpected decline in US core inflation. The lower inflation print has revived speculation about Federal Reserve rate cuts later this year, reducing demand for the greenback.

Sterling pressured by weak UK growth data

The British pound faced renewed selling pressure as UK GDP figures revealed lackluster economic performance. November’s monthly GDP edged up by just 0.1%, missing market expectations, while three-month growth stagnated at 0.0%. The disappointing data has fueled concerns about a potential contraction in the final quarter of the year.

Sterling’s challenges deepened after Monetary Policy Committee (MPC) member Alan Taylor struck a dovish tone in his first public address. Taylor suggested that while inflationary pressures are subsiding, the economy’s fragility warrants a return to more normalized interest rate levels. This sentiment has added to the bearish outlook for the pound as markets digest the potential for slower monetary tightening by the Bank of England.