GBP/JPY slides to six-week low on intervention fears, focus remains on BoE meeting

The GBP/JPY cross comes under some renewed selling pressure during the Asian session on Thursday and drops to the 182.40 area, or its lowest level since August 9 in the last hour.

The British Pound (GBP) continues with its relative underperformance in the wake of expectations for an imminent pause in the Bank of England's (BoE) rate-hiking cycle, which, in turn, is seen weighing on the GBP/JPY cross. Data released from the UK on Wednesday showed that the annual headline CPI fell to 6.7% in August from 6.8% in July, defying the consensus forecast for a rise to 7%. Moreover, importantly the core CPI – excluding volatile food, energy, alcohol and tobacco prices – came in at 6.2% in the 12 months to the end of August, down from 6.9% in July. The markets were quick to react and scaled back bets for a BOE rate hike to reflect a 50:50 chance of a hold.

The Japanese Yen (JPY), on the other hand, gets a minor lift in reaction to comments by Japan’s Chief Cabinet Secretary Hirokazu Matsuno, saying that he won't rule out any options for response to FX moves. This raises the risk of an intervention by authorities to prop up the domestic currency. Apart from this, speculations that the Bank of Japan (BoJ) could move away from the ultra-loose policy, along with a softer risk tone, benefit the safe-haven JPY and exert additional pressure on the GBP/JPY cross. BoJ Governor Kazuo Ueda had said that ending negative interest rates is among the options available if the central bank becomes confident that prices and wages will keep going up sustainably.

It, however, remains to be seen if bearish traders can maintain their dominant position or opt to lighten their bets ahead of the key central bank event risks – the crucial BoE policy decision on Thursday, followed by the highly-anticipated BoJ meeting on Friday. Nevertheless, the aforementioned fundamental backdrop seems tilted in favour of bearish traders. Adding to this, this week's repeated failures near the 50-day Simple Moving Average (SMA) support breakpoint, now turned resistance, suggests that the path of least resistance for the GBP/JPY cross is to the downside. Hence, any attempted recovery move might still be seen as a selling opportunity and fizzle out rather quickly.

Technical levels to watch