Yen Falls Despite BoJ Hike as BoE Vote Split Highlights Rate Debate

The Bank of Japan (BoJ) raised its policy rate from 1.00% to 1.25% on Friday, its highest level in 31 years, following a 7–2 vote. The increase was widely expected, while the yen subsequently weakened, with USD/JPY moving above 157 as markets assessed the likely pace of any further BoJ tightening.

In the UK, the Bank of England (BoE) left Bank Rate unchanged at 3.75% on Thursday in a 6-3 vote, with three policymakers preferring an increase to 4.00%. The BoE said its updated short-term projection, based on energy prices as at 14 September, indicated CPI inflation could reach slightly above 4% in early 2027. Alongside the rate decision, the BoE set out a multi-year quantitative-tightening plan, while Bank APF gilt auctions will pause pending further operational details to be announced by April 2027. UK government bond prices rose following the announcement.

Fresh UK Retail Sales data added another domestic development this morning. Sales volumes rose 0.5% in August, compared with expectations for a 0.2% decline, reversing July’s 0.5% fall. Annual sales volumes increased 2.4%, representing a stronger-than-expected monthly retail sales reading as markets continue to assess the UK growth and inflation outlook.

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GBP: Sterling Stabilises Following BoE Hold; UK Retail Sales Rise

GBP/USD: 1.3372 | EUR/GBP: 0.8589

GBP/USD is trading around 1.3372 after falling as low as 1.3336 on Thursday following the BoE decision. Sterling came under pressure after policymakers left Bank Rate unchanged at 3.75%, while three of the nine Monetary Policy Committee members preferred an increase to 4.00%.

The BoE also revised its quantitative-tightening framework. Bank APF gilt auctions will pause pending further operational details to be announced by April 2027, while the remaining monetary-policy gilt portfolio is intended to be unwound under a multi-year plan. UK government bonds rallied after the announcement, with the 30-year gilt yield falling sharply. The BoE noted that the perceived probability of near-term Bank Rate increases had risen, although market-implied expectations can change rapidly.

Fresh UK data this morning showed Retail Sales volumes rose 0.5% in August, compared with expectations for a 0.2% decline. Sales were also 2.4% higher year on year, while fuel volumes fell as higher prices affected purchases. Sterling showed a limited initial reaction to the release.

EUR/GBP is trading around 0.8589 after moving higher following Thursday’s BoE announcement. The cross approached 0.8600 as markets assessed the BoE’s decision to hold rates alongside the 6-3 vote split and revised gilt-sales programme.

Key technical reference levels for GBP/USD: resistance sits near 1.3400, followed by 1.3417, while support sits around 1.3336, followed by 1.3300.

Key technical reference levels for EUR/GBP: resistance sits near 0.8603, followed by 0.8607, while support sits around 0.8581, followed by 0.8578.

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EUR: Euro Recovers Toward 1.1500 as Final Inflation Is Revised to 3.2%

EUR/USD: 1.1488

EUR/USD is trading around 1.1488 after recovering from Thursday’s low near 1.1450. The pair remains below 1.1500, while the US dollar has eased slightly from the highs reached after Wednesday’s Fed decision.

Final Eurozone data showed annual Harmonised Index of Consumer Prices (HICP) inflation at 3.2% in August, revised down from the preliminary estimate of 3.3% but up from July’s 2.9%. Core inflation eased to 2.4% from 2.5%, while services inflation slowed to 3.0% from 3.3%.

Energy inflation, however, accelerated to 14.3%, keeping energy-related price pressures relevant for the European Central Bank (ECB). The data showed a higher headline inflation rate alongside softer core and services inflation, while markets continued to assess how energy-related price pressures may affect expectations for ECB policy.

EUR/USD has remained below the 1.1500 level following this week’s decline. At the time of writing, the euro was on track for its largest weekly fall since June, while changing expectations for US and Eurozone interest rates continue to influence the pair.

Key technical reference levels for EUR/USD: Resistance sits near 1.1500, followed by 1.1545, while Support sits around 1.1460, followed by 1.1435.

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USD: DXY Holds Above 100 While Oil and Yields Ease

DXY: 100.27

The Dollar Index (DXY) is trading around 100.27, holding above the 100 level after reaching a multi-week high earlier in the week. The index has moved into a narrower range as markets assess the Fed’s latest rate increase alongside softer energy prices and a pullback in Treasury yields.

US Initial Jobless Claims fell to 196,000 in the latest week, the lowest level since mid-July. Initial claims fell to 196,000, the lowest level since mid-July, although weekly claims data can be volatile. Thursday’s move in the US dollar was relatively limited as markets continued to assess expectations for further Fed tightening.

Oil prices have also moved lower for a third consecutive session, with Brent falling towards $103 a barrel as concerns over immediate Saudi supply disruption eased. Lower energy prices may reduce some of the inflation pressure that had contributed to higher US yields earlier in the week.

Attention now turns to today’s US industrial production and capacity-utilisation data. The releases may provide another indication of US economic activity following this week’s central-bank decisions, while DXY may also remain sensitive to changes in Treasury yields and expectations for the path of Fed rates.

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Other Currencies: USD/JPY Climbs Above 157 After BoJ Decision

USD/JPY: 157.05 | GBP/JPY: 210.27 | AUD/USD: 0.7125 | NZD/USD: 0.5718

USD/JPY is trading around 157.05 after the BoJ raised its policy rate from 1.00% to 1.25%, the highest level in 31 years. The decision was widely expected and passed by a 7-2 vote, while the yen subsequently weakened as markets assessed the likely pace of any further BoJ tightening.

Japan’s core inflation eased to 1.7% in August from 1.8%, slightly below expectations. The inflation data and split BoJ vote may influence market expectations for how quickly policymakers consider another rate increase.

GBP/JPY is trading near 210.27, having moved higher as the yen weakened following the BoJ decision. Changes in expectations for the relative BoE and BoJ policy paths may continue to influence the cross.

AUD/USD is holding around 0.7125 after Reserve Bank of Australia Governor Michele Bullock said inflation risks were beginning to materialise, keeping expectations around the possibility of further Australian rate increases in focus. NZD/USD trades near 0.5718, close to recent lows.

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Current Rate Table

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Market Lookahead

Fri, Sep 18

• BoJ Governor Kazuo Ueda Press Conference
• Fed Governor Michelle Bowman Speech

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