GBP/JPY retreats from weekly top, slides to 183.70 area amid reviving JPY demand

S&P 500 finishes with a modest gain
  • Thursday, 14 September 2023 | 3:39 Am (GMT)
  • GBP/JPY meets with a fresh supply and snaps a two-day winning streak to the weekly high.
  • Bets that the BoJ will drop its negative interest rate policy boost the JPY and exert pressure.
  • Speculations that the BoE is nearing the end of its rate-hiking cycle contribute to the decline.

The GBP/JPY currency pair is facing renewed selling pressure during the Asian trading session on Thursday, putting an end to its two-day streak of gains that saw it reach the weekly high around the 184.35-184.40 level in the prior session. The pair has dipped to a fresh daily low, hovering around the 183.70 mark in the last hour, primarily due to increased demand for the Japanese Yen (JPY).

A significant contributor to this JPY strength is the recent selloff in Japanese government bonds (JGBs), which has been triggered by the possibility of the Bank of Japan (BoJ) ending its negative interest rate policy earlier than expected. This shift in sentiment led to the yield on the 10-year benchmark JGB rising to its highest level since January 2014 on Tuesday. This surge in yields was in response to the hawkish comments made by BoJ Governor Kazuo Ueda over the weekend. In an interview with the Yomiuri newspaper, Ueda indicated that raising interest rates is one of the options the BoJ is considering if it becomes confident that prices and wages will continue to rise sustainably.

Furthermore, there are growing speculations that the Bank of England (BoE) is approaching the end of its cycle of interest rate hikes. This perception is contributing to the British Pound’s (GBP) relatively weaker performance and adding more pressure to the GBP/JPY currency pair. Recent data from the Office for National Statistics underscores these concerns, as it revealed a 0.5% contraction in Britain’s economy for July, marking the sharpest decline in seven months. This suggests that the UK economy is losing momentum, partly due to a significant increase in borrowing costs and the resurgence of recession fears. These economic challenges are further compounded by signs of a cooling UK labor market, aligning with prevailing market expectations.

In contrast, the disappointing economic data from Japan has had limited impact in providing support to the GBP/JPY cross. The Cabinet Office reported a larger-than-anticipated 1.1% drop in Japan’s core machinery orders for July, attributed to sluggish global growth and a slowdown in China. This decline adds to a series of recent indicators pointing to weakened demand both domestically and internationally, signaling a challenging period ahead for Japan, the world’s third-largest economy.

Despite these factors, the market’s muted response suggests that the GBP/JPY pair is more likely to trend downwards. Consequently, it is conceivable that the pair may retreat towards the 183.00 level, with potential further declines to a one-month low around the 182.70-182.65 range. In the absence of significant macroeconomic data from the UK, market volatility influenced by the European Central Bank (ECB) may offer some opportunities for traders to exploit short-term movements in the currency pair.

Technical levels to watch

GBP/JPY

OVERVIEW
Today last price183.77
Today Daily Change-0.41
Today Daily Change %-0.22
Today daily open184.18
TRENDS
Daily SMA20184.68
Daily SMA50183.14
Daily SMA100179.18
Daily SMA200170.7
LEVELS
Previous Daily High184.39
Previous Daily Low183.2
Previous Weekly High185.78
Previous Weekly Low183.07
Previous Monthly High186.77
Previous Monthly Low180.46
Daily Fibonacci 38.2%183.94
Daily Fibonacci 61.8%183.65
Daily Pivot Point S1183.46
Daily Pivot Point S2182.73
Daily Pivot Point S3182.26
Daily Pivot Point R1184.65
Daily Pivot Point R2185.12
Daily Pivot Point R3185.84

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