British Pound remains firm against yen amid Strait of Hormuz concerns

The GBP/JPY cross attracted dip-buyers on Wednesday after pulling back modestly from the 214.65-214.70 region, which marked a fresh monthly high in the previous session.

The currency pair maintained slight intraday gains during the early European session and traded around the 214.35-214.40 zone, up nearly 0.10% on the day.

The pair continued to find support from a combination of a softer US Dollar (USD) and persistent weakness in the Japanese Yen (JPY), reinforcing the near-term bullish outlook for GBP/JPY.

Weak yen supports GBP/JPY

The Japanese Yen remained under pressure against major global currencies amid concerns linked to the ongoing Middle East conflict and disruptions to energy supplies.

Market sentiment surrounding the yen weakened further as shipping activity through the Strait of Hormuz stayed sharply reduced due to Iran’s restrictions and the US naval blockade of Iranian ports.

The continued tensions between the US and Iran over Tehran’s nuclear programme and the strategic waterway also kept geopolitical risks elevated.

The geopolitical backdrop continued to undermine demand for the safe-haven Japanese currency despite expectations that the Bank of Japan (BoJ) could continue tightening monetary policy.

BoJ Deputy Governor Himino Ryozo said on Tuesday that the central bank would continue raising interest rates based on economic activity, inflation, and financial conditions.

However, even speculation that Japanese authorities could intervene again to support the domestic currency failed to boost bullish sentiment around the yen.

The Euro (EUR) extended its gains against the Japanese Yen (JPY) for a fourth straight session on Wednesday, climbing above the 185.46 level for the first time since the suspected currency intervention on April 30.

The yen remained under pressure despite hawkish remarks from Bank of Japan Governor Kazuo Ueda, with the Japanese currency continuing to weaken against major peers, fuelling speculation about the possibility of another market intervention by Japanese authorities.

This reinforced market expectations that the GBP/JPY cross could continue moving higher in the near term.

UK inflation data weighs on pound

On the other hand, gains in the British Pound were limited after traders pushed back expectations for the next interest rate hike by the Bank of England (BoE).

The shift in expectations followed the release of UK Consumer Price Inflation (CPI) data, which showed inflation unexpectedly slowing to 2.8% year-on-year in April.

The softer inflation reading reduced expectations of an immediate policy tightening move by the BoE and created some pressure on the pound.

Political uncertainty caps further upside

Political developments in the United Kingdom also remained a concern for investors.

Growing political uncertainty and increasing calls for Prime Minister Keir Starmer to step down prevented GBP bulls from placing aggressive bets.

The combination of slowing inflation and domestic political tensions could limit additional upside for the pound despite the broader weakness in the yen.

Still, the prevailing bearish sentiment surrounding the Japanese currency continued to provide support to the GBP/JPY pair, keeping the broader outlook tilted to the upside.