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- GBP/JPY recovered further from more than one-month lows set on Tuesday amid renewed JPY selling.
- Reduced safe-haven demand, coupled with BoJ uncertainty, weakens the safe-haven JPY.
- Technical setup issues warning for bulls ahead of key UK consumer inflation data.
The GBP/JPY cross was seen building on the previous day’s strong rebound from the 193.60-193.55 area, or its lowest level since October 8, and gained positive traction for the third day in a row on Wednesday. Momentum lifted the spot price from the mid-196.00s during the Asian session and was sponsored by a fresh sell-off around the Japanese yen (JPY).
Comments from Russian and US officials helped ease market concerns about the outbreak of a full-blown nuclear war. This, along with uncertainty over the timing of further monetary policy tightening by the Bank of Japan (BoJ), weakened the safe-haven JPY. Meanwhile, the UK government’s fiscal stimulus to boost domestic demand is expected to lead to inflationary pressures and the Bank of England’s (BoE) rate-cutting cycle will provide some support to the British pound (GBP). This seems to act as a tailwind for further GBP/JPY crosses.
That said, speculation that Japanese authorities may intervene in the FX market to support the domestic currency, coupled with geopolitical uncertainty, could prevent JPY bears from making aggressive bets. Investors may refrain from placing aggressive directional bets around the GBP/JPY cross and choose to wait for the release of the latest UK consumer inflation figures. Important data will play a key role in influencing the broader sentiment surrounding the GBP and provide some meaningful impetus to the currency pair.
From a technical perspective, the GBP/JPY cross showed some resilience below the 200-day Simple Moving Average (SMA) on Tuesday and further strength favors bullish traders. Furthermore, the oscillators on the daily chart have recovered from the lows, although they have yet to confirm a positive bias. Hence, any move beyond the 197.00 mark is likely to face stiff resistance near the 197.70-197.80 supply zone. Some follow-through buying outside the 198.00 round figure, however, would set the stage for additional near-term gains.
On the flip side, the 196.00 mark now seems to protect the immediate downside, below which the GBP/JPY cross could slide to the 195.40-195.35 support on its way to sub-195.00 levels. The latter represents the crucial 200-day SMA, a break of which could drag spot prices towards overnight swing lows, near the 193.60-193.55 zone, with some intermediate support around the 194.00 round figure.
GBP/JPY Daily Chart
Economic indicators
Consumer Price Index (YoY)
United Kingdom (UK) Consumer Price Index (CPI), published by the Office for National Statistics On a monthly basis, a measure of consumer price inflation – the rate at which the prices of goods and services purchased by households increase or decrease – is produced for international standards. It is a measure of inflation used in government targeting. The YoY reading compares the price of the reference month with the price of a year ago. Generally, higher readings for the Pound Sterling (GBP) are seen as bullish, while lower readings are seen as bearish.
Next release: Wed Nov 20, 2024 07:00
Frequency: monthly
Consensus: 2.2%
Previous: 1.7%
Source: Office for National Statistics
The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI), at around 2%, giving its importance to monthly releases. A rise in inflation means a faster and sooner rise in interest rates or a reduction in bond purchases by the BOE, which means a reduction in the supply of pounds. Conversely, a decrease in the pace of price growth indicates loose monetary policy. A highly-anticipated outcome GBP tends to be bullish.
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