GBP/JPY Price Forecast: Seems poised to build on momentum beyond 195.00 mark

GBP/JPY attracts buyers for the second straight day and touches a fresh weekly high.
The overnight bounce from the 200-day SMA and subsequent move up favor bulls.
Dips to the 194.35 area could be seen as a buying opportunity and remain limited.

Haresh Menghani FXStreet

The GBP/JPY cross builds on the previous day's goodish rebound from the 192.75-192.70 area, or over a one-week low, and gains positive traction for the second straight day on Wednesday. The momentum lifts spot prices to a fresh weekly low during the first half of the European session, with bulls now awaiting a sustained strength beyond the 195.00 psychological mark before placing fresh bets.

From a technical perspective, the GBP/JPY cross once again showed some resilience near the very important 200-day Simple Moving Average (SMA), and the subsequent move-up favors bullish traders. Moreover, positive oscillators on the daily chart suggest that the path of least resistance for spot prices remains to the upside. Hence, some follow-through move-up towards the next relevant hurdle, around the 195.70 area, looks like a distinct possibility.

The GBP/JPY cross might then aim to surpass the 196.00 round figure and retest the May monthly swing high, around the 196.25-196.30 region. A sustained strength beyond the latter could be seen as a fresh trigger for bulls and lift spot prices to the 197.00 round figure for the first time since January. The momentum could extend towards the 197.40-197.50 hurdle en route to the 198.00 mark and the 198.25 region, or the year-to-date peak touched in January.

On the flip side, any corrective pullback now seems to attract some dip-buyers near the 194.35 region, or the daily trough. This, in turn, should help limit the downside for the GBP/JPY cross near the 194.00 round figure. Failure to defend the said handle could make the currency pair vulnerable to accelerate the downward trajectory towards 193.45 intermediate support en route to the 193.00 mark and the 192.70 region, or the pivotal 200-day SMA.

GBP/JPY daily chart

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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