The BoE met last week and it was this line in the minutes that led to the surge higher in the pound. A line concerning hiking interest rates. Some developments during the intervening period appear to have strengthened that case (for hiking rates), although considerable uncertainties remain. Reading through the minutes it was clear to see that the Bank of England was concerned about inflation. In particular rising natural gas prices was a worry to the BoE. However, it was this line that got my attention, ‘the MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework’. Money markets priced in a 15bps rate hike in March bringing forward from June next year after the release.

The JPY should remain weak with the BoJ expected to keep interest rates at their current, low levels, aThe US10 year yields breaking higher give the JPY reason for more weakness. If the Fed is going to be more hawkish going forward then that should further support USDJPY upside and help weaken the JPY.

The technicals

There are a number of ways to enter a GBPJPY long.

On a trendline break

At market with a hidden bullish divergence in play on the weekly

On any pullback

The risk

The main risk is that if the Evergrande crisis flairs up again and that can result in some JPY strength. The risks of this being very serious are seen to be low, with even Powell chipping in on the reassurances. However, risk is risk and the event of such a large company collapsing should not be easily discounted. The other risk is a slowdown in the UK recovery undermining the faster rate hike outlook from the BoE.