GBP/USD, JPY/USD Forecast: Two trades to watch
GBP/USD slips after CPI data & ahead of Trump’s speech
GBP/USD has given back earlier gains amid a modest USD recovery ahead of Trump’s speech at Davos and as investors digest UK inflation data.
UK CPI rose to 3.4% year on year, ahead of expectations of 3.3%, and up from November's reading of 3.2% on a monthly basis. Headline CPI is 0.4% after contracting 0.2% in November. Core CPI, which removes more volatile items such as food and fuel, remained at 3.2% year on year, in line with forecasts.
The increase in inflation was mainly driven by one-offs - a rise in tobacco duty and airfares. Service sector inflation, which is closely tracked by the BoE, rose to 4.5% from 4.4%, a smaller-than-expected increase.
The BoE expects inflation to reach its 2% target in the spring of this year and has forecast that the chancellor's budget will help remove 0.5% from price growth over the coming years. Market bets on interest rate cuts from the BoE are little changed following the data, pricing in a 25-basis-point rate cut, with a 70% chance by the end of the year.
The US dollar is rising modestly, recovering from a two-week low against its major peers as investors await President Trump's speech at Davos. The speech comes following his tariff threats, which triggered a sell-off in US assets abroad at the start of the week. Fears of prolonged uncertainty, a loss of confidence in US leadership, and potential retaliation drove the 'sell America' trade.
Investors will wait to see Trump's tone when he speaks at the World Economic Forum. Should Trump continue to double down on his plans to acquire Greenland, the dollar could head lower. Any sense that Trump may soften his tone in order to get a deal done could help drive a dollar recovery.
GBP/USD forecast – technical analysis
GBP/USD is trading sideways around 1.3440. The price holds above the 200 SMA, keeping the bias tilted to the upside. The RSI also holds above 50 amid a slight improvement in momentum.
Buyers would need to rise above the 1.3485 resistance, a level which has capped gains on several occasions over the past few weeks. A rise above here brings 1.3550 into focus, the 2026 high.
Support is seen at 1.34, the 200 SMA and a horizontal support. A break below here brings 1.3350, the January low into play. A move below here creates a lower low.
USD/JPY hold steady ahead of Trump & Friday’s BoJ meeting
USD/JPY is struggling for direction amid recent weakness in both the USD and the JPY, as investors await Trump’s speech in Davos and the BoJ rate decision on Friday.
The USD fell sharply yesterday as the White House’s threats over Greenland triggered a broad selloff in US assets. Trump has made it clear that securing Greenland for national security reasons is a core objective. The market is waiting to see whether Trump softens his tone in Davos, which could help drive a USD recovery.
While the dollar is holding steady against the yen, the Japanese currency has suffered its own setback after Prime Minister Takaishi called a snap election on Monday for February 8th, and pledged a wave of measures to loosen fiscal policy.
Japanese government bonds were hit hard, with the 40-year yield spiking 27.5 basis points to a record 4.215% on Tuesday, and has since eased slightly to 4.1% today.
The yen is trading at a record low against the Swiss franc and is close to a record low versus the euro.
When bond yields rise, and the currency falls, it is a warning that the market doesn’t like what it's seeing, putting Takaichi on track for her own “Liz Truss” moment.
Attention is now turning to the Bank of Japan rate decision on Friday, but after hiking interest rates in December, no change is expected this month. Instead, attention will be on communication with policymakers, likely to maintain a slightly hawkish stance.
USD/JPY forecast - technical analysis
USD/JPY has trended higher since September, forming a series of higher highs and higher lows. The price ran into resistance at 159.15, an 18-month high last week and has since eased lower to the 1.58.00 region. The price is testing the rising trendline support and the November high as momentum fades.
Should momentum pick up, butters will look to rise above 159.15 to extend gains towards 160.00, the round number and 162.00, the 2024 high.
On the downside, a break below the 158 support zone exposes the 50 SMA at 156.40. Below here 154.50 comes into play, the December low.
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