- A combination of factors dragged GBP/JPY into the negative territory for the second straight day.
- COVID-19/COVID-19 woes continued weighing on the British pound and exerted some pressure.
- A modest JPY uptick contributed to the downtick; the risk-on environment helped limit losses.
The GBP/JPY cross dropped to fresh daily lows, around the 154.30 region during the first half of the European session, albeit lacked any strong follow-through selling.
The cross struggled to capitalize on its intraday uptick, instead met with some fresh supply in the vicinity of the key 155.00 psychological mark and turned lower for the second straight day. The British pound's relative underperformance could be attributed to growing market worries that the UK may delay its plans to end restrictions fully in light of the spread of the Delta variant.
Senior ministers in the UK signed off a decision to postpone the lifting of all COVID-19 restrictions beyond June 21. British Prime Minister Boris Johnson will make a statement on the coronavirus situation later this Monday and push back the timeline to end lockdown measures. This, along with the EU-UK stand-off over Norther Ireland protocol exerted some additional pressure on the sterling.
In a further escalation of the dispute between the two parties, the EU warned of swift and firm action if the UK fails to implement its post-Brexit obligations. Adding to this, French President Emmanuel Macron said that NI is not a part of the UK. This was seen as another factor that kept the GBP bulls on the defensive and prompted some fresh selling around the GBP/JPY pair.
On the other hand, the Japanese yen benefitted from a subdued US dollar price action, which further contributed to the offered tone surrounding the GBP/JPY cross. That said, the underlying bullish sentiment in the financial markets capped any meaningful gains for the safe-haven JPY and helped limit any further losses for the GBP/JPY cross amid absent relevant market moving economic releases.
From a technical perspective, the GBP/JPY cross, so far, has managed to hold its neck comfortably above the two-week lows touched last Friday. This should now act as a key pivotal point, which if broken decisively will set the stage for an extension of the recent pullback from the 156.00 mark, or the highest level since February 2018 touched in May.
Technical levels to watch
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