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GBP / JPY rallies back to pre-Omicron levels around 153.50

  • GBP / JPY rallied back to its pre-omicron levels on Thursday, rising from around 152.50.
  • That marks a recovery of more than 2.5% from previous weekly lows below 150.00.

The impressive turnaround of the GBP/JPY From the previous weekly lows below the important psychological level of 150.00 it rose on Thursday, with the pair breaking out above the key 152.50 area during European trading to advance to the 153.50 area. On the day, that translates to gains of roughly 0.8%, meaning the pair is now up roughly 2.0% for the week and more than 2.5% from Monday’s lows.

The spike in volatility is surprising from a seasonal point of view; Typically in the last weeks of December volumes and volatility are lower than usual due to the Christmas and New Years holidays in Europe, the US and elsewhere. But given the backdrop to the Omicron variant currently engulfing the world, the volatility isn’t all that surprising. From that perspective, Thursday’s upward move is significant because it saw GBP / JPY rebound to its pre-Omicron levels (mid-153.50). The surprising recovery of the last three sessions is a reflection of the positive developments of Ómicron, including 1) numerous studies showing that it is significantly smoother than the delta variant and 2) the momentum is balanced against the imposition of blocking measures in the United Kingdom.

The fact that (at the moment) it seems unlikely that the UK government will implement tighter restrictions in England reduces economic uncertainty and perhaps allows markets to have a little more confidence that the Bank of England will generate more increases of successive rates in 2022. In other words, now that the uncertainty of Ómicron in the UK is waning, it appears that the GBP is finally benefiting from the recent aggressive turn by the Bank of England. Remember that, last week, the British pound failed to sustain the gains from the BoE rate hike after the surprise.

Technical levels

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