GBP/JPY recovers from one-week lows, back above 156.00 on Lavrov’s comments

• GBP/JPY attracted some buying on Monday and recovered a significant part of its intraday losses.
• A change in risk sentiment undermined the safe haven JPY and extended some support.
• The lack of a strong follow-on buy warrants some caution for aggressive bullish traders.

The crossing GBP/JPY It managed to rebound almost 100 pips from a one-week low hit earlier this Monday and was last seen trading modest losses around the 156.25 region.

The cross extended last week’s retracement decline from the vicinity of the 2021 high, or levels just above the 156.00 mark and witnessed heavy selling during the first half of trading on Monday. Tensions over Northern Ireland’s protocol to the Brexit deal, coupled with Friday’s disappointing UK GDP report, turned out to be a key factor undermining sterling. This, coupled with the risk-off momentum in the markets, benefited the safe-haven Japanese yen and put additional pressure on the GBP/JPY cross.

That said, a more aggressive policy move from the Bank of England should help limit deeper losses for the pound. It is worth recalling that the BoE raised the benchmark interest rate by 25 bps and the distribution of votes showed that four of the nine MPC members backed a more aggressive 50 bps increase in borrowing costs. Aside from this, the strong intraday rally in equity markets acted as a headwind for the JPY, helping to limit deeper losses for the GBP/JPY cross and attracting further buying near the 155.30 area.

Russian Foreign Minister Sergey Lavrov’s latest comments helped ease concerns about an impending Russian invasion of Ukraine. Lavrov told Russian President Vladimir Putin in a meeting on Monday that the United States had put forward concrete proposals to reduce military risks and that he could see a way forward in the talks. However, he warned that indefinite talks are not possible, but there is always the possibility of an agreement. This gave the market some reassurance, which was evident by a change in risk sentiment.

It will now be interesting to see if the bulls can capitalize on the move or if the intraday rally is seen as an opportunity to initiate further bearish positions around the GBP/JPY cross. Therefore, it will be prudent to wait for strong follow-up buying before confirming that the recent corrective pullback has run its course. Market participants are now eagerly awaiting Tuesday’s release of the UK jobs report for a fresh boost.

Technical levels