GBP / JPY firmly bounces off key 149.00 zone as broad risk appetite picks up

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  • GBP / JPY saw a solid bounce on Monday along with a broad rebound in risk appetite.
  • The pair bounced off the key 149.00 zone and a more dovish BoE may keep gains limited.
  • Technicians will observe a key resistance area at 152.50.

The GBP/JPY It has seen a solid recovery on Monday from the multi-month lows it recorded last Friday below 149.00 and is currently trading near the session highs at 150.45, an increase of around 0.8% on the session. 149.00 has been a key support zone for the past few months. The pair has been swinging in recent weeks, falling sharply in late November when news of the emergence of the new Omicron Covid-19 variant dampened global risk appetite. On / off risk has been the main driver of the pair ever since and this remains the case on Monday.

Stocks and other risky assets like crude oil are higher amid hopes that the Omicron variant will turn out much smoother than previous Covid-19 variants like delta and this is hitting safe-haven currencies like the and in. If fears about the new variant and any disruption it may cause to the global economic recovery continue to wane, it would not be surprising to see risk assets continue to push higher and GBP / JPY continue to rally as a result. Short-term bulls may point to a retest of the 152.50 zone that has acted as resistance and support on numerous occasions in recent months.

An interesting topic in currency markets will be whether central bank divergence will again be one of the main drivers of price action. Ahead of the resurgence of risk aversion in late November, a key driver for GBP / JPY has been the change in Bank of England tightening expectations and associated movements in UK bond yields. The rhetoric of BoE members in recent days has become more subdued. Bank of England Monetary Policy Committee member Michael Saunders, who voted for a 15 basis point rate hike in November, said he wanted more information on the impact of the new variant of the Omicron coronavirus before deciding how vote this month. The message from Bank of England Deputy Governor Ben Broadbent on Monday was similar.

As a result, a 15 basis point rate hike this month by the bank has now been almost entirely discounted by the market. As a result, in the run-up to the Bank of England meeting next Thursday, the 152.50 zone could well act as a ceiling for price action. In the short-medium term, a range of 149.00-152.50 seems likely to prevail.

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