|

British Pound consolidates near multi-year top vs JPY; bullish potential intact

  • GBP/JPY bulls pause for a breather following the overnight sharp rally to a fresh multi-year high.
  • Intervention fears lend support to the JPY and cap the cross, though the downside seems limited.
  • Easing UK political uncertainty and fiscal concerns favor bulls amid the wide UK-Japan rate gap,

The GBP/JPY cross enters a bullish consolidation phase following the previous day's blowout rally and oscillates in a range near mid-219.00s through the early European session on Thursday. Meanwhile, the constructive fundamental backdrop suggests that the path of least resistance for spot prices remains to the upside.

The British Pound (GBP) draws support from easing UK political uncertainty and growing optimism over the UK's fiscal outlook amid expectations that the incoming Prime Minister, Andy Burnham, will pick a fiscally conservative finance minister. Adding to this, the persistently wide interest rate differential between the UK and Japan contributes to the JPY's relative underperformance against its Japanese counterpart.

The Bank of England's (BoE) base rate sits at 3.75%. The Bank of Japan (BoJ), on the other hand, raised the short-term policy rate in June to 1% or, the highest level since 1995. This, however, still leaves an approximate gap of 275-basis-points (bps) and keeps the so-called carry trade active, which has been a key factor behind the Japanese Yen's (JPY) underperformance and acts as a tailwind for the GBP/JPY cross.

Meanwhile, the GBP moves little following the release of the monthly UK GDP print, which showed that the economy grew by 0.1% in May after contracting at a similar pace in the previous month. Separately, the UK Industrial Production data fell short of expectations and contracted 0.5% in May versus a 0.2% rise prior, while Manufacturing Production increased by 0.1% during the reported month, higher than 0.2% forecasted.

That said, traders remain on high alert that Japanese authorities will step in to prop up the domestic currency. This, in turn, holds back the JPY bears from placing aggressive bets and caps the upside for the GBP/JPY cross amid a slightly overbought RSI on the daily chart. Nevertheless, the aforementioned supportive factors suggest that any corrective pullbacks might be seen as a buying opportunity and remain cushioned.

Pound Sterling Price This week

The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD-0.57%-1.08%0.18%-0.79%-0.73%-1.57%-0.23%
EUR0.57%-0.52%0.78%-0.23%-0.21%-1.01%0.35%
GBP1.08%0.52%1.23%0.27%0.31%-0.50%0.92%
JPY-0.18%-0.78%-1.23%-1.06%-0.91%-1.79%-0.46%
CAD0.79%0.23%-0.27%1.06%0.15%-0.74%0.62%
AUD0.73%0.21%-0.31%0.91%-0.15%-0.80%0.47%
NZD1.57%1.01%0.50%1.79%0.74%0.80%1.42%
CHF0.23%-0.35%-0.92%0.46%-0.62%-0.47%-1.42%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

More from Haresh Menghani
Share:

Editor's Picks

GBP/USD drops below 1.3550 on geopolitical tensions, hawkish Fed bets

GBP/USD trades with mild losses below 1.3550 in the second half of the day on Tuesday. The US Dollar recovers some ground amid ongoing Middle East tensions and hawkish expectations around the Fed's interest rate outlook, weighing on the pair ahead of US data releases.

EUR/USD stays below 1.1600 ahead of US data

EUR/USD struggles to capitalize on the overnight bounce and trades below 1.1600 on Tuesday. The data from the Eurozone showed that the annual HICP inflation rose to 3.3% in August from 2.9% in July, matching the market expectation, while the core HICP inflation edged lower to 2.4% from 2.5% in this period. In the second half of the day, JOLTS Job Openings and ISM Manufacturing PMI data will be featured in the US economic calendar.

Gold extends reversal below $4,400 on hawkish Fed repricing

XAU/USD extends its reversal below $4,400, posting a nearly 7% decline from last week's highs. Precious metals struggle this week as markets reprice a Fed rate hike in September.

Crypto Today: Bitcoin, Ethereum, XRP struggle to extend gains despite ETF inflows

Bitcoin stalls while holding above $78,000 support as ETF inflows return. Ethereum takes a breather around $2,450 amid sustained institutional support. XRP remains pressured as the 200-day EMA provides immediate support.

US JOLTS Job Openings set to show a steady labor market

The US Bureau of Labor Statistics has a busy week, releasing relevant employment data. It will start on Tuesday with the publication of the July Job Openings and Labor Turnover Survey (JOLTS) at 14:00 GMT. The JOLTS report is expected to show job openings stood at 7.3 million in July.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.