Global Currencies in Flux: Yen Strengthens, Pound Finds Relief Amid Inflation Data

As speculation mounts on rate hikes by the Bank of Japan, the yen strengthens, while British inflation cools, temporarily buoying the pound. Traders remain cautious ahead of U.S. CPI data, which may impact Federal Reserve policies, perpetuating a global bond selloff and affecting currency positions worldwide.

On Wednesday, Japan's yen saw a notable strengthening due to rising expectations of a rate hike by the Bank of Japan. Concurrently, a decrease in British inflation provided temporary relief for the pound. Traders, however, exercised caution as they awaited key U.S. price data set to influence global markets.

U.S. consumer price index figures for December are the week's major scheduled economic event. A rise beyond the anticipated 0.2% monthly increase in core CPI could constrain the Federal Reserve's capacity to reduce rates, thereby reinforcing the ongoing global bond selloff, which has been supporting the dollar.

Attention also focused on Japan following BOJ Governor Kazuo Ueda's statements suggesting possible interest rate hikes. The yen's climb mirrored multi-month highs in Japan's government bond yields. In Britain, easing inflation sparked hopes of a Bank of England rate cut, providing unexpected backing to the pound amidst market volatility.

(With inputs from agencies.)