GBP/JPY falls towards 161.50 in reaction to gloomy economic outlook from the Bank of England

• GBP/JPY is under intense selling pressure after the Bank of England warns of an economic downturn.
• The BoE now expects the UK recession to start in the fourth quarter and last for the whole of next year.
• The revival of the demand for the yen, which is a safe haven, also contributes to the intraday drop of almost 250 points.

The crossing GBP/JPY experiences a dramatic turnaround from near 164.00, or a one-week high touched earlier this Thursday. The pair dropped to 161.50. falling almost 250 pips after the Bank of England announced its policy decision.

Sterling weakens across the board after the Bank of England warned that the UK recession will start in the fourth quarter and last into next year. Also, the British central bank said that monetary policy is not on a pre-set path. This suggests that the BoE is more likely to slow down the pace of its tightening cycle, which, in turn, weighs on the British pound and triggers aggressive selling around the GBP/JPY cross.

Intraday selling pressure continues during the post-meeting press conference, where BoE Governor Andrew Bailey noted that uncertainty surrounding the outlook is exceptionally high. This dwarfed the BoE’s historic move to raise benchmark interest rates by 75 basis points – the most since 1995 – to 1.75%, the highest level since late 2008. Meanwhile, reviving demand for the yen The safe-haven Japanese put additional pressure on the GBP/JPY cross.

The latest leg down suggests that this week’s recovery from the two-month low has run out and supports prospects for a further short-term depreciation move for the GBP/JPY cross. Therefore, a follow down back to the 161.00 round level now looks like a distinct possibility. Any rally attempt could be seen as a selling opportunity and risks fading quickly.

Technical levels to watch