On Thursday, both the Bank of England (BoE) and the Bank of Japan (BoJ) held their policy rates unchanged, but their decisions and accompanying statements triggered significant moves across major currency pairs [1][2][3]. The BoE maintained its rate at 3.75% with a unanimous 9-0 vote, surprising markets that had expected a split decision and signaling a hawkish shift compared to February's narrow 5-4 hold [1]. Governor Andrew Bailey stated the BoE 'stands ready to act' if inflation persists, and the Monetary Policy Committee revised its Q3 inflation forecast sharply higher to 3.5%, up from 2.0% in February, citing surging energy costs from the Iran conflict [1]. MPC member Catherine Mann indicated a shift toward a longer hold or even a hike, while Swati Dhingra, typically dovish, acknowledged rates may need to rise if oil disruption continues [1]. UK employment data showed the ILO unemployment rate at 5.2%, beating the 5.3% forecast, and employment change at 84K, though average earnings excluding bonuses slowed to 3.8% from 4.1% [1].
The BoJ held its policy rate at 0.75% as expected, but Governor Kazuo Ueda's press conference was notably hawkish, warning that rising crude oil prices from the Middle East conflict could push underlying inflation higher [2]. Ueda noted companies may pass on costs more aggressively than after the Ukraine war, given active wage and price increases, with preliminary shunto wage demand data averaging close to 5.9% [2]. Japanese markets will be closed on Friday for Vernal Equinox Day, which may thin liquidity [2].
Market reactions were pronounced: GBP/USD surged nearly 1.3%, climbing above 1.3400 to close around 1.3430, marking its strongest single-day rally in several weeks and partially unwinding the steep sell-off from late January [1]. USD/JPY dropped 1.25%, sliding below 158.00 to settle near 157.80, erasing most gains from the prior five sessions as Yen strength dominated [2]. GBP/JPY posted minimal gains of 0.02%, seesawing between gains and losses, and traded at 212.00, virtually unchanged, with bulls eyeing a breakout above 212.73 [3]. Technical analysis for GBP/JPY shows a bullish bias within an ascending channel, supported by multiple moving averages, but momentum remains close to neutral, suggesting choppy trading ahead [3].
Currency heat map data indicates the Japanese Yen was the strongest against the Canadian Dollar this week, while GBP gained 1.45% against JPY and USD gained 1.06% against JPY [3]. On the US Dollar side, the Federal Reserve held rates at 3.50%-3.75% and still projects one cut this year, but Chair Jerome Powell flagged elevated uncertainty from the Iran war, and the updated dot plot showed seven of 19 officials expect no cuts at all in 2026 [1][2]. US new home sales fell 17.6% MoM, and initial jobless claims dropped to 205K against a 215K consensus [1][2].
Forward-looking statements from both central banks highlight ongoing uncertainty: The BoE stands ready to act if inflation persists, and the BoJ is monitoring the impact of rising energy prices and wage demands on inflation [1][2]. Technical outlooks suggest GBP/USD and USD/JPY are at key resistance/support levels, with GBP/JPY bulls watching for a breakout above 212.73 [1][2][3].
CONCLUSION
Central bank decisions and hawkish signals from both the BoE and BoJ drove sharp currency moves, with GBP/USD rallying and USD/JPY sliding on Thursday. Market sentiment is positive for GBP and JPY, reflecting heightened volatility and uncertainty amid inflation concerns and geopolitical risks. Forward guidance from both banks suggests continued vigilance and potential for further policy action if inflationary pressures persist.