The price chart of the GBP/JPY currency pair has shown a surge in the European session yesterday after the published UK inflation data recorded a high reading at 10.4%.
Why do high inflation readings make the value of the Pound rise?
This is due to the expectation that the central bank will have to tighten monetary policy by raising interest rates, aiming to lower inflation.
Due to the move, the money supply in the economy will decrease and the effect will make the value of the currency fall.
Thus, it can be observed that the price on the GBP/JPY chart has jumped to the level of 163,300.
However, the upward momentum failed to be maintained when investors had to witness the price plunge again to reach the level of 160,800.
Investor vigilance is being heightened as focus will be on the outcome of the Bank of England (BOE) policy meeting today, at 8pm Malaysian time.
The price movement that has now been below the Moving Average 50 (MA50) barrier level on the 1-hour time frame on the GBP/JPY chart gives a bearish signal.
If the price drop continues past the 160,500 level, it is seen that it will go to the support zone that was tested several times last week and also last Monday, around 159.00.
The continued decline lower will reach the 157,700 level to record the latest 6-week low.
Meanwhile, for the expectation of a price increase, passing the 162.00 level and the MA50 barrier will again indicate a more bullish price movement.
The highs reached yesterday are likely to be overcome if the outcome of the BOE meeting supports the strengthening of the Pound.
The price that surges higher has the potential to reach up to the resistance zone which is at 164.500.
