GBP/JPY consolidates near 156.50 ahead of BoJ policy meeting

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  • The GBP/JPY pair is consolidating near 156.50 in quiet trading as the focus is on a slew of UK data and the BoJ meeting.
  • The pair is also likely to continue to trade as a gauge of global risk appetite this week.

After last Friday’s brief drop below support at the 156.00 level and the test of 155.50, the pair recovered to trade around the 156.50 area for most of the session on Monday, rising around the 0.2% on the day. Forex volumes were lower than usual on Monday due to the US markets being closed for MLK Day, leading to unusually flat trading conditions. Monday’s modest recovery above 156.00 sets up the possibility that the pair could rally this week to test recent highs in the 157.70 area, thus keeping alive GBP/JPY’s uptrend which has seen a rally of over 5.0 % since early December near lows of 149.00.

Much of this rally hinged on a sharp improvement in global risk appetite in the final weeks of December, as Omicron’s fears subsided and markets became more confident that the BoE’s surprise December rate hike would be followed by more than 2022. But central bank tightening fears (mainly related to the Fed) have left US and global stocks breathless in early 2022, helping to support the yen and pull back GBP/JPY from recent highs. The GBP/JPY pair could well continue to track the fortunes of equity markets this week as an indicator of risk appetite.

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A slew of UK data including Tuesday’s latest jobs report, Wednesday’s inflation numbers and Friday’s latest retail sales figures could pose some upside risk to the British pound if it is strong enough to support BoE rate hike expectations. Traders should also keep an eye on what could turn out to be an unusually interesting BoJ meeting on Tuesday, after sources recently hinted that members of the bank are already considering how the bank could withdraw stimulus in the coming years, even before for inflation to return to the BoJ’s 2.0% target. Any hint on this front could boost rate hike expectations for 2023 or beyond and could put some upward pressure on Japanese yields, although BoJ yield curve control should keep volatility under wraps. However, a BoJ aggressive line meeting would offer yen support and be worth watching.

Technical levels

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