- GBP/JPY hit new highs in more than six years on Thursday, eclipsing Wednesday’s high of 164.84 by about a pip.
- But the pair was unable to sustain a break towards 165.00 despite rising global yields, instead pulling back amid profit taking.
The GBP/JPY hit new highs in more than six years on Thursday, eclipsing Wednesday’s high of 164.84 by about a pip. However, despite a strong rise in bond yields from the US, UK and world markets (apart from Japan), the pair was unable to make a convincing break higher towards 165.00. Rather, the pair pulled back on Thursday to test the 164.00 level once again and is currently trading at 164.40, trading down around 0.2% on the day.
The lack of bullish momentum could have something to do with the risk-off tone in US stock market trading. Typically, the GBP/JPY cross is correlated with other risky assets such as US equities. It could have something to do with the fact that since the beginning of the month the GBP/JPY pair has already made a solid rally of almost 3.0% from levels below 160.00 and therefore it was due to a consolidation/profit taking.
It could have something to do with the drop in FX trading volumes on Thursday ahead of a long week in the American and European markets, which will be closed on Friday for the Easter holidays. Whatever the reason, Thursday’s consolidation is unlikely to be the start of a broader reversal towards recent lows in the 160.00 area.
Most developed market central banks, including the BoE, remain in inflation-fighting mode, meaning the path for short-term interest rates and government bond yields is likely to remain bullish. . Japan, with still very low inflation, remains the exception, leaving the yen vulnerable to widening yield spreads and central bank policy divergence between the BoJ and the rest of the G10.
To be sure, this week’s strong UK labor market data and saucy UK consumer price inflation reports keep the BoE very much on track for more rate hikes in the near term. When proper trade flows return next week, GBP/JPY is likely to try to rally above 165.00.
Source: Fx Street
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