GBP / JPY clings to modest gains above 157.00, lacks tracking

• GBP / JPY attracted some buying on the dips on Friday and reversed an initial drop to the 156.80 zone.
• Bullish UK PMIs overshadowed dismal retail sales and acted as a tailwind for the British pound.
• Stability in equity markets undermined the safe-haven JPY and further extended support.

The crossing GBP/JPY it quickly rallied around 50 pips from lows hit early in the European session, although it lacked follow-up and was last seen trading modest gains around the 157.25-30 region.

After an early rally to the 157.65 region, the GBP / JPY cross saw some selling in reaction to dismal UK retail sales figures which added to signs of weakness in the economic recovery. Against the backdrop of softer UK consumer inflation figures this week, the data further dampened hopes of an imminent rate hike by the Bank of England in November. This, in turn, was seen as a key factor that acted as a headwind for the British pound.

Investors, however, appear to be convinced that the Bank of England will eventually raise interest rates from record lows before the end of this year. This, coupled with stronger-than-expected UK PMI impressions for October, helped the GBP / JPY cross attract some buying near the 156.85-80 region, just before weekly lows. The services PMI rose to a four-month high, while the indicator for the manufacturing sector rose unexpectedly during the reported month.

Meanwhile, reports that China Evergrande made funds available for a bond coupon to a trustee account helped ease concerns about a credit crunch in China’s real estate sector. This was evident by the stability in the equity markets, which undermined the demand for the Japanese yen as a safe haven and provided an additional boost to the GBP / JPY cross. That said, the rally lacked a strong following and warrants some caution for aggressive bull traders.

Technical levels