GBP/JPY volatile and back below 160.00 after BoE announcement
|- GBP/USD comes under intense selling pressure on news of Japan’s intervention in the FX market.
- A solid intraday recovery in the British pound rolls over and sees prices push back down into the 159s.
- The BoE monetary policy decision saw a brief recovery in the pound after the bank hiked rates by 50 bps.
The GBP/JPY cross witnessed a dramatic intraday turnaround on Thursday and tumbles nearly 500 pips from the daily high touched during the early European session. The sharp downfall drags spot prices closer to mid-159.00s, or its lowest level since early August and is exclusively sponsored by a massive rally in the Japanese yen.
Japan's top currency diplomat Masato Kanda confirmed this Thursday that the government has intervened in the FX market, which, in turn, prompts aggressive short-covering around the JPY. This, to a larger extent, overshadows the Bank of Japan's dovish stance and turns out to be a key factor exerting heavy downward pressure on the GBP/JPY cross. It is worth recalling that the Japanese central bank decided to leave its policy settings unchanged and vowed to keep purchasing bonds so that 10-year yields remain pinned at zero.
The British pound, on the other hand, staged a solid bounce after the Bank of England decided to raise interest rates by 50 bps as expected. This offered some support to the GBP/JPY cross and assisted spot prices to quickly rise back above the 160.00 psychological mark, but dissapointment that the BoE did not implement a supersized rate hike, in the manner of the Riksbank or Fed, meant the rally was short-lived and soon reversed.
The pair still trades within a multi-year rising channel although the current decline has taken it close to the bottom of said channel at roughly 159.00. A move down to that level would see bulls come in temporarily to give support to price; a break then close or open below, on a daily basis, would see a likely considerably volatile breakout move evolve to the downside. Currently the 200-day Simple Moving Average (SMA) is providing support in the 160.20s, and is another major obstacle for bears to overcome in their bid to drag prices lower.
Technical levels to watch
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