- During the three-day downtrend, GBP/JPY seesaw around two-week lows.
- US 10-year Treasury yields fell the most in two weeks by the dovish Fed.
- Bank of Japan hawkish concerns, weaker UK data and workers’ strikes have weighed on prices.
- The BoE is expected to announce a 0.50% rate hike, but it’s important to watch for hints of policy reversal.
GBP/JPY remains depressed around 159.20 but further stalls on the downside ahead of major Bank of England (BoE) monetary policy announcements due Thursday. That said, the cross-currency pair traces a correction in Treasury yields while depicting a cautious market mood ahead of a major event.
US 10-year Treasury yields fall the most in two weeks after the US Federal Reserve (Fed) announced a dovish 0.25% rate hike, a day after testing two-week lows It is worth noting that The U.S. central bank has signaled fading fears over inflation, with Chairman Jerome Powell saying he is ready to cut interest rates if inflation falls faster. The same has driven the risk-on mood and favored the Wall Street bulls.
Besides strong yields, hawkish comments from Bank of Japan (BoJ) officials also supported the GBP/JPY bears. That said, Bank of Japan Deputy Governor Masazumi Wakatabe has said the bank will continue to implement monetary policy to achieve his 2% inflation rate with wage increases. Japan’s central bank recently implemented multiple bond market moves to protect its Yield Curve Control (YCC) policy.
Elsewhere, massive strikes by various UK trade unions have challenged an already struggling economy, putting downward pressure on GBP/JPY prices. Reuters reported that “500,000 British teachers, civil servants and train drivers walked out on Wednesday in the biggest organized strike in a decade over wages as the government stepped in its demands over wages. The trade unions are threatening more chaos,” he said. .
On the same line, the bearish print of the S&P Global/CIPS UK Manufacturing PMI also confirmed a sixth straight month of contraction in factory output by flashing the 47.0 figure against initial forecasts of 46.7, and the GBP/ Pleased the JPY bears. “In addition to weak demand from domestic and international clients, high prices and shortages of raw materials and staff have all weighed on production. Demand from China was particularly weak, but Brexit and port issues It hit exports,” S&P Global told Reuters.
Against this backdrop, S&P 500 futures registered a modest gain, followed by Japan’s Nikkei 225, with traders awaiting central bank comments for the next round.
That said, the BoE’s 0.50% rate hike has already happened, so Cable sellers will be more interested in hearing about a quick rate hike or policy pivot. Besides the BoE, risk catalysts and bond market movements are also important for his GBP/JPY trader.
technical analysis
A sustained reversal from the 50-day exponential moving average (EMA) (around 161.55 at time of writing) guides GBP/JPY bears towards an upward support line near 157.40 from late September 2022 .