GBP/JPY jumps back closer to multi-year tops, 156.00 mark back in sight

A sudden pickup in demand for the sterling pushed the GBP/JPY cross to two-day tops, around the 155.75 region during the first half of the European session.

Following a brief consolidation earlier this Thursday, the cross regained positive traction for the second consecutive session and was supported by a combination of factors. Investors remained concerned that an extension of the state of emergency in Tokyo and eight other prefectures by about 3 weeks to June 20 could hinder Japan's fragile economic recovery. This, along with resurgent US dollar demand, weighed on the Japanese yen and extended some support to the GBP/JPY cross.

On the other hand, the British pound remained well supported by the upbeat outlook for the UK economic recovery amid the gradual easing of lockdown measures. The UK Prime Minister Boris Johnson reiterated that there is nothing in the data currently to indicate that a delay to fully end restrictions from June 21 would be necessary. Adding to this, indications that the Bank of England could raise rates well into next year acted as a tailwind for the sterling.

It is worth recalling that the BoE policymaker Gertjan Vlieghe indicated last week that the central bank was likely to raise rates earlier if the economy rebounds more quickly than expected. The optimism was further fueled by an upward revision of the UK Services PMI, which was finalized at 62.9 for May. This also pointed to the fastest rate of output growth in 24 years and now supports prospects for additional near-term gains for the GBP/JPY cross.

That said, it will still be prudent to wait for some follow-through buying beyond the 156.00 mark – the highest level since February 2018 touched in May – before positioning for any further gains. The GBP/JPY cross might then build on its recent strong positive move from the 149.00 mark and aim to surpass 2018 yearly swing highs, around the 156.60 region.

Technical levels to watch