In early European trading on Tuesday, currency markets are largely in a holding pattern as investors await key monetary policy decisions from the Bank of England (BoE), Bank of Japan (BoJ), and European Central Bank (ECB) scheduled for Thursday [1][2]. The GBP/JPY pair edged up to near 212.00, driven by broad underperformance of the Japanese Yen, despite BoJ Governor Kazuo Ueda expressing confidence that prices and wages are rising moderately and underlying inflation is gradually accelerating toward the central bank’s 2% target [1]. The BoJ is expected to leave interest rates unchanged at 0.75%, with investors closely watching for commentary on the impact of the Middle East conflict on Japan’s economic growth and the timing of potential future rate hikes [1].
Meanwhile, the EUR/GBP cross held steady near 0.8635 as traders remain cautious ahead of the ECB and BoE rate decisions and the release of UK employment data [2]. The ECB is anticipated to keep its benchmark deposit rate unchanged at 2.0% at its March meeting, although interest rate futures are fully pricing a rate hike by the end of July and about a 55% chance of a second hike by December. However, economists polled by Reuters maintain their view of steady rates, while ECB Governing Council member Peter Kazimir noted that the Iran war and its inflationary impact may force the ECB to raise rates sooner than expected [2].
The BoE is expected to leave interest rates unchanged at 3.75%, with a 7-2 majority, as surging oil prices due to supply disruptions amid the Middle East conflict have de-anchored inflation expectations in the UK and globally [1]. Economists at Oxford Economics warned that a worst-case scenario with oil prices rising to $140 a barrel could significantly increase inflation and tip the UK economy into a mild recession [2].
On Thursday, the UK Office for National Statistics will release labor market data for the three months ending January. The ILO Unemployment Rate is projected to remain steady at 5.2%, and Average Earnings Excluding Bonuses are expected to cool to 4% year-on-year from the previous 4.2% [1][2]. Any signs of improvement in the UK labor market could support the Pound Sterling against the Euro in the near term [2].
CONCLUSION
Markets are in a wait-and-see mode ahead of major central bank decisions and UK jobs data, with expectations for unchanged rates at the BoE, BoJ, and ECB. Inflation risks, particularly from oil price shocks, remain a key concern for policymakers and investors. Currency pairs are trading steadily, with potential for volatility following Thursday's announcements and data releases.