GBP/JPY hovers around 151.50 after the heaviest fall in a month, focus on UK CPI

• GBP/JPY remains pressured after declining the most since August 19 the previous day.
• Firmer Treasury yields keeps sellers hopeful despite mostly positive UK jobs data.
• Brexit, covid headlines join Fed tapering woes to weigh on risk appetite.
• UK Inflation figures for August become the key amid BOE tapering chatters.

GBP/JPY bears take a breather around 151.50 during Wednesday’s Asian session, after declining the most in one month the previous day. The cross-currency pair’s heavy fall could be linked to the risk-off mood while the latest consolidation takes clues from the pre-UK CPI release caution and a lack of major data/events.

Market sentiment turned sour amid escalating chatters over the US Federal Reserve (Fed) tapering even after the US Consumer Price Index (CPI) dropped the most since January on monthly basis. That said, the US CPI dropped the most since January on monthly basis to 0.3% versus 0.4% expected and 0.5% prior.

Also challenging the mood are the coronavirus fears and Brexit headlines. While the latest covid numbers from the UK and Japan have been mixed, the overall challenges to the respective economies couldn’t be ignored. On the same line were doubts concerning the British government’s preparation for another lockdown in winter. This includes booster shots and one vaccine dose to 12-15-year-olds.

Brexit drama stretches as Britain delays full post-Brexit border checks from the European Union (EU). “The UK is to delay introducing post-Brexit checks on food and farming imports to England, Scotland and Wales, blaming Covid disruption and pressure on global supply chains,” said the BBC. Fears of the EU-UK tussles also escalate after the “BOE Governor Andrew Bailey issued a fresh broadside over the European Union’s post-Brexit plans on clearinghouses, warning any upheaval risked a “real threat” to financial stability,” per Bloomberg.

Alternatively, a lack of downbeat UK jobs report backs the BOE hawks and keeps the GBP/JPY buyers hopeful. UK job numbers came in mixed with the Unemployment Rate matching the expected weakness to 4.6% during the three months to July versus 4.7% prior. However, the Claimant Count Change came in a bit higher than the forecast of -71.7K to -58.6K in August versus -7.8K previous readouts. Further, Average Earnings Excluding Bonus matched the softer forecast of 6.8% for 3M/yr July period but inched above 8.2% market consensus of 8.2% to 8.3%, compared to 8.8% prior, while including the bonus component.

It should be noted that the latest Reuters Tankan survey details weigh on the Japanese Yen (JPY) and favor the pair’s corrective pullback. “Japanese manufacturers' confidence worsened to a five-month low in September as the fallout from the latest wave of COVID-19 put fresh pressure on the world's third-largest economy,” said Reuters.

Amid these plays, US Treasury yields lick their wounds after declining the most in a month whereas S&P 500 Futures track Wall Street losses by the press time.

Looking forward, today’s UK CPI data will be important to watch given the latest chatters over the winding up of the Quantitative Easing (QE) by the BOE’s Husher, also previously backed by the other policymakers. Forecasts suggest the headline CPI is likely to jump from 2.0% to 2.9% YoY.

Technical analysis

Multiple failures to cross a downward sloping trend line from late May, around 152.25, join the latest U-turn from 100-DMA level of 152.85 to direct GBP/JPY sellers towards 61.8% Fibonacci retracement of the late July fall surrounding 150.40.