- GBP/JPY encounters aggressive bidding and falls to more than one-week lows on Thursday.
- The threats of intervention, coupled with the BoJ's hawkish talks, provide a strong boost to the JPY.
- A softer risk tone further benefits the safe-haven JPY and contributes to the decline.
The GBP/JPY cross comes under intense selling pressure on Thursday and retreats further from its highest level since August 2015, around the 191.30 area touched earlier this week. Spot prices plummet to more than one-week lows during the first half of the European session, although they manage to bounce back a few pips in the last hour and are currently trading around the 189.65-189.70 zone, still down almost 0.60% on the day.
A fresh intervention warning from Japan's Deputy Finance Minister for International Affairs Masato Kanda and hawkish comments from Bank of Japan (BoJ) board member Hajime Takata provide a strong boost to the Japanese yen ( JPY), which, in turn, causes aggressive selling around the GBP/JPY cross. In fact, Kanda reiterated that the Government is willing to take appropriate measures against excessive movements and volatility in exchange rates.
On the other hand, Takata stated that achieving the 2% inflation target is getting closer and that the central bank must consider adopting an agile and flexible approach towards an exit from ultra-loose monetary policy. Aside from this, a slight deterioration in global risk sentiment – as evident from the cautious mood prevailing around equity markets – turns out to be another factor benefiting the yen's relative safe haven status.
The British pound, for its part, is hurt by growing expectations that the Bank of England (BoE) will begin cutting interest rates soon. This further contributes to the sharp intraday decline of the GBP/JPY pair to the 189.35 area. Meanwhile, policymakers have been trying to counter market expectations for early interest rate cuts, which, in turn, lends some support to spot prices and helps limit further losses.
Indeed, BoE deputy governor Dave Ramsden said on Tuesday he wanted more evidence that inflationary pressures were easing before considering an interest rate cut. Additionally, the BoE's Catherine Mann stated on Wednesday that the spending habits of wealthy Britons make it harder to curb inflation. This, in turn, justifies some caution before confirming that the GBP/JPY cross has bottomed and positioning for further losses.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
