GBP/JPY has become the best currency pair for investment in the first half of the year. The uptrend, which started in January, reached its peak just in time for the end of June, which allowed investors to take profits in the middle of the year, but then we see consolidation at the highs. Does this mean that the full potential of the pound, as well as the risks associated with it, are already priced in? - Yes. The pound needs new stimulus, for example in the form of a further increase in the interest rate by the Bank of England or through simple economic growth. Today the rates have reached their 7-year peak. More expensive than now, the pound against the yen was worth in the period from 2014 to 2015. At that time, the UK was still in the EU, and the economy did not know the consequences of pandemics or the sanctions war with Russia. Is it worth it to keep investing in the pound or is it time to start selling right now, being at the highs? - Looking for answers in today's review.
While the Bank of England is confidently raising the rate, and among investors there is only a question of the number of increases per year, the Japanese regulator has not revised its rate even once during the entire period of the global interest rate rally, despite the fact that inflation in Japan is 50% above the target. The striking difference in monetary policy still generates a strengthening of one currency against another.
The pound has been under pressure this week due to a weak retail sales report, as well as a decrease in probability of an increase in the rate at the next meeting of the Bank of England. Demand for risky assets declined after a negative report from China, where both exports and imports fell equally in July, indicating a decreased business activity in general. Nevertheless, we can see a resumption of the upward movement at the end of the week, and technical analysis indicators show the effectiveness of purchases in all time intervals.
Volatility will rise significantly next week as a huge array of macro reports are expected. If we talk about new incentives for the pound, then it can receive them in full, starting tomorrow, when the GDP report is published in the 2nd quarter, although the incentives may turn out to be negative, because near-zero GDP is expected in the 2nd quarter. In the current situation, we would recommend to be careful with new Buys, since the growth at the highs is always limited and is associated with the risks of price correction. Although we do not see any signs for a trend reversal, it is already worth thinking about selling in the near future, and it is possible to set a number of pending trades at those levels when prices will definitely turn down. However, today we are still buying the pound, which may remain profitable for several more months, until the cycle of rate hikes is fully completed.
