- The GBP/JPY cross gained strong positive traction for the third day in a row and soared to a one-week high.
- The British pound saw aggressive short-covering in reaction to the positive UK jobs report.
- Risk appetite momentum undermined the yen haven and continued to support the upside move.
The crossing GBP/JPY it maintained its strong bid tone through the middle of the European session and was last seen around 161.50, just a few pips shy of a one-week high.
The cross built on last week’s strong rebound from close to the important 200-day SMA and rose for the third day in a row on Tuesday. Sterling strengthened across the board after the latest UK jobs report showed the ILO jobless rate dipped to 3.7% in the three months to March from 3.8% previously.
Additional data revealed that the number of people applying for jobless benefits fell by 56.9 thousand in April. The data points to a tense situation in the UK labor market and bets are rising for a further interest rate hike by the Bank of England at next month’s meeting. This, in turn, led to aggressive short-covering of sterling crosses.
Elsewhere, the boost in risk appetite, represented by the strong rally in global equity markets, undermined demand for the safe-haven Japanese yen. In addition, the more dovish stance taken by the Bank of Japan further weighed on the domestic currency, providing an additional boost and contributing to the strong rise in the GBP/JPY pair.
However, it remains to be seen whether the bulls are able to maintain their dominant position amid the dispute between the UK and the EU over the Northern Ireland protocol. However, the GBP/JPY pair has recovered almost 50% of its recent sharp corrective pullback from a five-year high. As investors digest UK macroeconomic data, attention is turning back to Brexit developments.
Technical levels
Source: Fx Street
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