The Bank of England (BoE) is anticipated to keep its benchmark Bank Rate unchanged at 3.75% for the third consecutive meeting, as policymakers weigh the inflationary impact of the ongoing Middle East conflict, particularly elevated oil prices resulting from the Iran war [1]. The Monetary Policy Committee (MPC) is expected to vote 8-1 in favor of holding rates at the April meeting, following a unanimous decision in March [1]. The BoE's Monetary Policy Report, policy statement, and meeting minutes will be released at 11:00 GMT, with Governor Andrew Bailey's press conference scheduled for 11:30 GMT, events likely to increase volatility in the Pound Sterling (GBP) [1][2].
UK inflation, measured by the Consumer Price Index (CPI), rose to 3.3% year-over-year in March from 3.0% in February, marking the first impact from the Iran war [1]. Services inflation increased, mainly due to volatile air fares during Easter, while wage growth slowed, with average earnings excluding bonuses at 3.6% YoY for the three months ending February, down from 3.8% previously [1]. Ofgem, the UK energy regulator, cut its price cap by 7% in April, reducing typical household energy bills, but this may be offset by war-related energy price increases and new tax rises [1].
Market participants are closely watching for any hints from the BoE regarding future rate hikes, as swaps markets are pricing in nearly 75 basis points of hikes over the next twelve months, potentially raising the Bank Rate to 4.50% [1]. However, analysts at BBH believe these rate hike bets are too aggressive given excess slack in the economy [1]. Traders are also considering the possibility of at least two rate hikes by the BoE in 2026, with inflation risks stemming from war-driven energy price surges [2].
The GBP/JPY currency pair is consolidating near its highest level since January 2008, above 216.00, as traders await the BoE policy update [2]. The Japanese Yen (JPY) has underperformed amid concerns about supply disruptions through the Strait of Hormuz, with shipping traffic declining due to Iranian restrictions and a US naval blockade [2]. Despite the Bank of Japan's hawkish pause and upward revision of inflation forecasts, the JPY remains weak, although speculation about Japanese authorities intervening to stem further losses is limiting additional downside [2][3].
Elsewhere, the AUD/JPY cross has risen to near 114.25, supported by Australia's CPI inflation climbing to 4.6% YoY in March, driven by higher energy costs from the Middle East conflict [3]. Technical analysis indicates a bullish bias for AUD/JPY, with resistance at 114.72 and 115.85, and support at 113.20, 110.60, and 109.25 [3]. Japanese Finance Minister Satsuki Katayama stated that authorities are on standby for decisive action against speculative currency moves [3].
CONCLUSION
The Bank of England is expected to maintain its current interest rate amid heightened inflation concerns driven by the Middle East conflict, with market participants closely watching for future guidance. Currency markets are experiencing significant volatility, with GBP/JPY at multi-year highs and AUD/JPY in a bullish trend, reflecting broader impacts from war-driven energy price surges and supply disruptions. Forward-looking statements suggest continued uncertainty, with analysts divided on the likelihood of further rate hikes and Japanese authorities prepared to intervene in currency markets.