British Pound trades higher at start of UK data-packed, BoE policy week

• The British Pound starts positively at the start of the UK busy week.
• Investors will be pay close attention to the UK employment and CPI data ahead of the BoE’s policy decision.
• The BoJ is highly expected to hike interest rates on Friday.

The British Pound (GBP) is up against its major currency peers, except North American currencies, at the start of the United Kingdom (UK) data-packed week and the Bank of England’s (BoE) monetary policy announcement. As of writing, the Pound Sterling is up 0.14% at around 208.00 against the Japanese Yen (JPY).

This week, investors will pay close attention to the UK employment data for three months ending July on Tuesday and the Consumer Price Index (CPI) data for August on Wednesday ahead of the BoE’s interest rate decision on Thursday.

Both the employment and the inflation data are expected to have a significant impact on BoE’s interest rate expectations for the policy meeting this week.

The UK labor market report is expected to show that the ILO Unemployment Rate increased to 5% from 4.9% in three months ending June. Average Earnings Including Bonuses, a key measure of wage growth, is expected to arrive lower at 3.9% Year-on-Year (YoY) from the previous reading of 4.1%, with figures for wage growth Excluding Bonuses remaining steady at 3.5%.

Meanwhile, UK’s core CPI – which excludes volatile components of food, energy, alcohol and tobacco – rose at a faster pace of 2.7% YoY against the previous reading of 2.6%.

Lately, markets experts believe that strong UK monthly Gross Domestic Product (GDP) data for July has kept BoE interest rate hike expectations alive.

UK data beat keeps BoE decision a close call

Analysts at Societe Generale note that UK growth data surprised to the upside in July, with "UK July GDP 0.4% m/m, 0.4% 3m/3m, above forecast." They highlight a broad-based advance across sectors, as "Services 0.4%, manufacturing 0.9%, construction 0.1%," all posted gains on the month.

According to Societe Generale, this "surprise July GDP gain of 0.4% could means close BoE call next week," potentially sharpening the debate over near-term policy moves. Even so, the bank maintains that the Monetary Policy Committee is likely to stay cautious, reiterating its baseline view that the BoE will remain "on hold at 3.75% through year-end."

This week, the JPY will be influenced by the Bank of Japan’s (BoJ) monetary policy announcement on Friday. The BoJ is widely anticipated to hike interest rates, which underpins policy guidance as major trigger for Yen’s next move.

Strategists at HSBC note that markets are increasingly pricing a quicker normalisation of Japanese monetary policy, with investors now expecting the Bank of Japan “to tighten policy faster than it has done in recent years.” They point out that “overnight index swaps imply around 75bp of cumulative hikes by April 2027 and even assign meaningful odds of a hike at the 18 September meeting, which stands out as unusual.” HSBC argues that these repricings “suggest investors anticipate a change in how the BoJ responds to inflation and growth risks.”