- GBP/JPY struggled to capitalize on its intraday uptick and faced rejection near the 154.00 mark.
- COVID-19 jitters and Bailey’s dovish comments continued acting as a headwind for the sterling.
- The risk-on mood undermined the safe-haven JPY and helped limit the downside for the cross.
The GBP/JPY cross faded an intraday bullish spike to the 154.00 neighbourhood and quickly retreated around 50 pips in the last hour, though lacked any follow-through selling. The cross was last seen trading just above mid-153.00s, nearly unchanged for the day.
Following an early dip to the 153.35 region, the GBP/JPY cross gained some positive traction on Thursday and built on the previous day's goodish rebound from over one-week lows. The intraday buying picked up pace in reaction to the Bank of England Governor, Andres Bailey's comments that the central bank was prepared to respond with monetary policy took if there are signs of more persistent inflation pressure.
The uptick, however, ran out of the steam after Bailey added that the BoE shouldn't overreact to temporary inflation rise. Bailey further noted that the central bank expects the cost of living to go up in the coming months but that should only be short-lived. This, along with a downward revision of the UK Manufacturing PMI and worries about the spread of the more contagious Delta variant of the coronavirus, weighed on the sterling.
Meanwhile, the downside remains cushioned, at least for the time being, amid the underlying bullish sentiment in the financial markets, which tends to undermine the safe-haven Japanese yen. Apart from this, a modest US dollar strength, along with a goodish pickup in the US Treasury bond yields further weighed on the JPY and extended some support to the GBP/JPY cross. This, in turn, warrants some caution for bearish traders.
Hence, it will be prudent to wait for some strong follow-through selling before positioning for the resumption of the recent pullback from levels beyond the key 155.00 psychological mark.
Technical levels to watch
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