- A combination of factors pushed GBP/JPY higher for the third successive day on Thursday.
- Receding Omicron fears turned out to be a key factor behind the sterling’s outperformance.
- The risk-on mood undermined the safe-haven JPY and remained supportive of the move up.
The GBP/JPY cross continued scaling higher through the first half of the European session and shot to a near one-month high, around the 153.45 region in the last hour.
A combination of factors assisted the GBP/JPY cross to build on this week's solid rebound from mid-149.00s and gain strong positive traction for the third successive day on Thursday. The British pound's relative outperformance comes amid receding concerns that the fast-spreading Omicron variant could derail the economic recovery.
Reports indicated that the current vaccines may be more effective than first thought in fighting the new COVID-19 variant. Moreover, a South African study suggested reduced risks of hospitalisation and severe disease in people infected with Omicron compared with the Delta strain. This helped offset worries about surging COVID-19 cases in the UK.
In fact, Britain reported 106,122 new cases on Wednesday, the highest since the pandemic began. The UK Prime Minister Boris Johnson, however, had ruled out the possibility of imposing further restrictions before Christmas. Johnson further added that the Omicron variant related data will be kept under review to see if stricter measures are needed next week.
Nevertheless, the GBP/JPY cross has been gaining strong positive traction and was further supported by the prevalent risk-on mood, which tends to undermine the safe-haven Japanese yen. This, along with some technical buying on a sustained breakthrough the very important 200-day SMA, further contributed to the ongoing momentum to the highest level since November 26.
In the absence of any major market-moving economic releases from the UK, developments surrounding the coronavirus saga will play a key role in influencing the GBP. Traders will further take cues from the broader market risk sentiment, which will drive demand for the safe-haven JPY and produce some short-term opportunities around the GBP/JPY cross.
Technical levels to watch
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