- GBP/JPY is currently trading sideways at the 163.20 area as a drop in global yields after US CPI supports the yen.
- The pair did not react to the mixed UK employment data on Tuesday, with the focus now shifting to Wednesday’s UK CPI release.
The GBP/JPY has stabilized below 163.50 on Tuesday, after mixed UK labor market data failed to give sterling much lift, and with global yields retreating from recent highs on the back of a US inflation not as high as forecast. relieve pressure on the yen. The pair has ranged between 162.80 and 163.60 and is currently trading sideways at the 163.20 area as the forex market has focused more on 1) outperformance in commodity sensitive currencies like NOK, AUD and NZD and 2) outperformance lower in USD after the release of US inflation figures.
Speaking of which, despite the headline rate of consumer price inflation hitting a new four-decade high at 8.5%, core measures of price pressures weren’t as good as feared, leading markets to launch some aggressive line bets recently built by the Fed. As a result, US bond yields are retracing from multi-year highs reached earlier in the day and weigh on yields in the euro zone , the UK and other developed markets.
This is giving the yield-sensitive yen some breathing room as the currency has been hit by widening rate spreads in recent weeks. Looking ahead to the rest of the week, traders will be watching to see if the pullback in yields has more legs. If so, the GBP/JPY pair is likely to drop back towards 162.00.
But UK CPI data is due out on Wednesday and if it surprises to the upside it could be a bullish catalyst for sterling. Whether that would be enough for the pair to test the March highs at 164.50 is another question.
Technical levels
Source: Fx Street
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