GBP/JPY recovers early losses as UK Inflation rose more than expected in July

• GBP/JPY bounces back as hot UK CPI strengthens the Pound Sterling.
• Both the UK headline and core CPI rose at an annual pace of 3.8% in July.
• Investors await Japan's National CPI data for July.

The GBP/JPY pair claws back its early losses and flattens around 199.20 during the European trading session on Wednesday. The pair attracts bids as the Pound Sterling (GBP) gains after the release of the United Kingdom (UK) Consumer Price Index (CPI) report for July, which showed that price pressures grew at a faster-than-projected pace in July.

The Office for National Statistics (ONS) reported that the headline inflation grew at a faster pace of 3.8% on year, compared to estimates of 3.7% and the prior release of 3.6%. Accelerating price pressures are expected to force the Bank of England (BoE) to reconsider its "gradual and careful" monetary easing guidance for the remainder of the year. BoE officials could avoid reducing interest rates further if inflation proves to be persistent.

In the monetary policy meeting earlier this month, BoE Governor Andrew Bailey warned that rising food and energy prices are de-anchoring consumer inflation expectations. The UK central bank also raised one-year forward CPI projections to 2.7% from 2.4%.

Going forward, investors will focus on the flash UK Purchasing Managers' Index (PMI) data for August, which is scheduled to be published on Thursday.

In Japan, investors await the National Consumer Price Index (CPI) data for July, which will be published on Friday. According to expectations, the National CPI excluding Fresh Food grew moderately by 3%. Signs of cooling inflationary pressures would dampen market speculation supporting interest rate hikes by the Bank of Japan (BoJ).