GBP/JPY eases from tops, still well bid around 134.80 region

The GBP/JPY cross held on to its modest gains through the early European session, albeit has retreated around 20 pips from daily tops.

The cross built on the previous day's goodish intraday bounce from sub-134.00 level, or one-week lows and gained some follow-through traction on Tuesday. A strong bid tone surrounding the British pound was seen as one of the key factors driving the GBP/JPY cross higher amid the prevalent risk-on mood.

The global risk sentiment remained well supported by the optimism about a potential vaccine for the highly contagious coronavirus disease. This, in turn, undermined demand for the safe-haven Japanese yen (JPY) and remained supportive of the GBP/JPY pair's move to the key 135.00 psychological mark.

The JPY was further weighed down by the Bank of Japan's (BoJ) dovish outlook, forecasting that the domestic economy could contract by 4.7% in fiscal 2020. Adding to this, the BoJ Governor Haruhiko Kuroda, in the post-meeting press conference, showed readiness to ease monetary policy further.

On the other hand, the sterling benefitted from Wednesday's hotter-than-expected UK consumer inflation figures. In fact, the headline CPI rose by 0.6% in June and the yearly rate also came in better than market expectations, easing worries about deflationary pressures from the economic downturn.

Despite the supporting factors, the GBP/JPY cross lacked any strong follow-through as investors remained concerned over worsening US-China relations. This coupled with the continuous surge in the number of COVID-19 cases might keep a lid on any runaway rally, at least for the time being.

Technical levels to watch