GBP/JPY bounces off multi-week lows, still in the red below 138.00 mark

The emergence of some aggressive selling around the British pound pushed the GBP/JPY cross to over three-week lows, around the 137.30 region in the last hour.

The cross remained under intense selling pressure for the second consecutive session on Friday and extended this week's retracement slide from the 140.35-40 supply zone. The latest leg of a sudden fall since the early European session followed reports the European Commission president Ursula von der Leyen told EU leaders about her low expectations about reaching a Brexit deal with the UK.

This comes after a key summit between von der Leyen and the UK Prime Minister Boris Johnson ended without any apparent progress. Officials cited that both sides remain far apart on key issues like fisheries and level playing field. With less than three weeks left before the end of the transition period on December 31, the developments seemed to have increased the chances of a no-deal Brexit.

This, in turn, took its toll on the sterling and was seen as a key factor exerting some heavy pressure on the GBP/JPY cross. Apart from this, the uncertainty over US fiscal stimulus dented investors' confidence. This was evident from a slight deterioration in the global risk sentiment, which benefitted the safe-haven Japanese yen and further contributed to the GBP/JPY pair's decline.

That said, the optimism over the rollout of a vaccine for the highly contagious coronavirus disease kept a lid on any strong gains for the JPY. Investors also seemed reluctant to place aggressive bets ahead of Sunday's final deadline to hammer out a compromise in Brexit talks, which extended some support and assisted the GBP/JPY cross to quickly rebound around 50 pips from daily lows.

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