- GBP/JPY witnessed strong selling for the third day in a row and plunged to a multi-month low.
- The gloomy outlook for the UK economy and the UK debt market selling weigh on the pound sterling.
- The global flight to safety lifts the JPY and further contributes to the sharp intraday decline.
The crossing GBP/JPY remains under intense selling pressure for the third day in a row and slumps to a four-month low around the mid-157.00 mark during the mid-European session.
The British pound continues its relative underperformance amid the worsening outlook for the UK economy, which, in turn, is seen weighing on the GBP/JPY cross. Fears were fueled by the disappointing release of PMI data, which showed that the decline in UK companies deepened in September. Furthermore, a survey by the Confederation of British Industry revealed that the retail balance fell to -20% in September from +37% in August.
The selling bias around the pound is accelerating after the new British government unveiled a sweeping economic plan in a bid to boost growth. Finance Minister Kwasi Kwarteng announced reductions in the top rate of income tax, social security and stamp duty of £45bn. The stimulus will be financed largely through the sale of gilts, which has raised concerns about the cost of the government’s borrowing plans and triggered a strong sell-off in the UK government bond market.
The contagion effect is taking its toll on global risk sentiment, manifesting itself in a sea of red in equity markets. This comes a day after Japanese authorities intervened in the market for the first time since 1998 to stem the rapid decline of the national currency, boosting the yen’s relative safe-haven status against its British counterpart. This was another factor that contributed to the heavily bid tone surrounding the GBP/JPY cross.
However, oversold conditions on intraday charts prevent traders from placing further bearish bets and help the pair climb back above 158.00. However, the GBP/JPY cross remains on track to end the day lower and post losses for the second week in a row. This could have set the stage for a further decline towards May’s monthly low around the 155.60 area.
Technical levels
Source: Fx Street
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