GBP/JPY is poised for a fifth straight day of gains, but continues to struggle to break above 162.00
- GBP/JPY is poised for a fifth consecutive session of gains, but continues to struggle to push above 162.00.
- The yen remains out of favor due to the continued rise in global yields following Fed and ECB aggressiveness this week.
- But doubts are mounting that the BoE will live up to tightening expectations, capping GBP/JPY’s upside for the time being.
The steady uptrend in GBP/JPY that has been in motion for the entire week so far continued on Thursday, with the pair now on track to post a fifth consecutive daily gain. Global yields continue to climb, with notable upside breakouts in US yields on Thursday amid hawkish comments from Fed policymakers all week, as well as recent releases of Fed and ECB minutes. both warmongers.
This is not a good environment for the very spread-sensitive Japanese yen, which is currently suffering as the BoJ seems determined to maintain its policy of controlling the yield curve (keeping 10-year yields below 25 basis points of zero). As global yields rise, this makes holding the yen less attractive.
But GBP/JPY’s gains over the week aren’t all that impressive at just 0.8% at the time of writing. The pair continues to struggle to push north from the 162.00 level, which appears to be the start of a double top formation (on the four hour candles).
The pullback in global equity markets is not helping the risk-sensitive pair, nor are recent relatively modest increases in UK yields (vs. US yields, for comparison). The BoE’s tone has changed lately to be more concerned about an expected slowdown in growth from the second quarter, rather than worrying about inflation.
As a result, doubts about the bank’s conviction for further rate hikes are mounting and hurting the attractiveness of sterling. Many analysts are of the view that, particularly in light of stagflationary events in Ukraine, the BoE will fall short of the rate hike expectations currently set for 2022. If so, UK yields will not may have more to gain. .
While it’s probably too early to bet on a GBP/JPY reversal lower given that the yen remains very much out of favor, it’s hard to see the pair advancing much higher. Late March highs above 164.00 will likely act as a ceiling in the coming weeks and a pullback to test support in the form of 2021 and early 2022 highs in the 158.00 area in the coming months. coming seems like a decent bet, assuming the BoE doesn’t. live up to the warmongering hype.