- GBP/JPY regained positive traction on Wednesday and held steady near multi-year tops.
- Worries about a surge in coronavirus cases in Japan acted as a headwind for the JPY.
- Mostly upbeat UK macro data remained support, albeit failed to impress bullish traders.
The GBP/JPY cross held on to its modest gains near session tops, around the 153.75-80 region and had a rather muted reaction to the latest UK macro releases.
Following the previous day's good two-way price swings, the cross managed to regain some positive traction on Wednesday amid the emergence of some fresh selling around the Japanese yen. Concerns that the recent surge in COVID-19 cases could hinder Japan's fragile economic recovery continued acting as a headwind for the JPY. This was seen as the only factor that provided a modest lift to the GBP/JPY cross.
That said, a combination of factors might hold bulls from placing any aggressive bets and keep a lid on any runaway rally for the GBP/JPY cross, at least for the time being. The prevalent risk-on mood – as depicted by an extended selloff in the global equity markets – benefitted the JPY's relative safe-haven status. This, along with a modest pullback in the sterling, might further collaborate to cap gains for the cross.
The global risk sentiment took a hit amid worries that rising inflationary pressure would force the Fed to raise interest rates earlier than anticipated. Adding to this, escalating conflict between Israeli and Palestine further dented investors' confidence. In fact, the UN Special Envoy to the Middle East Peace Process Tor Wennesland said this Wednesday that Israel and Palestine are heading towards full-scale war.
On the other hand, the British pound trimmed a part of this week's strong gains led by the outcome of the Scottish election, which pushed back the risk of an imminent independence referendum. The GBP also seemed unimpressed, rather shrugged off a slew of better-than-expected UK data, which showed that the economy expanded by 2.1% MoM in March as against 1.4% growth anticipated and the previous month's upwardly revised reading of 0.7%.
Adding to this, the UK Industrial/Manufacturing Production figures and Goods Trade Balance also came in better than consensus estimates, albeit failed to provide any impetus to the GBP/JPY cross. Hence, it will be prudent to wait for some follow-through strength beyond the 154.00 mark before traders start positioning for any further near-term appreciating move.
Technical levels to watch
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