GBP / JPY steady below multi-year highs, decline appears limited

• The UK’s softer CPI report triggers some profit taking around GBP / JPY on Wednesday.
• The recent widening of the yield differential between the UK and Japan acts as a tailwind for the pair.
• The BoE rate hike expectations support the prospects for lower level buying.

The crossing GBP/JPY it has reversed a dip early in the European session to the 157.40 zone and is trading, at the time of writing, around the 157.65 region.

The British pound moved lower on Wednesday following the release of softer-than-expected UK consumer inflation figures., which, in turn, triggered some profit taking around the GBP / JPY cross. The UK Office for National Statistics (ONS) reported that the Overall CPI slowed to a 3.1% year-on-year rate in September compared to the 3.2% expected.

In addition, the inflation indicator Core CPI (excluding volatile prices for food and energy items) slowed to 2.9% yoy last month from the 3.1% reported in August, again below estimates. The data could have forced investors to cut their expectations for an imminent rate hike by the Bank of England in November and acted as a headwind for the British pound.

The crossing GBP / JPY fell around 80 pips from the 158.20 region, or the highest level since June 2016, although it lacked any continuation and found decent support near the 157.40 region. The recent widening of the government bond yield spread between the UK and Japan continued to weigh on the Japanese yen and it helped limit any deeper pullback at the crossover.

Also, investors still seem convinced of an imminent BoE rate hike in 2021. This was seen as another factor that extended some support to GBP / JPY, although overbought conditions prevented traders from opening new bullish positions. However, the bias remains in favor of the bulls and supports the outlook for lower buying.

GBP / JPY technical levels