- A combination of factors dragged GBP/JPY lower for the third consecutive session on Thursday.
- The risk-off mood benefitted the safe-haven JPY and exerted downward pressure on the cross.
- Brexit/COVID-19 woes acted as a headwind for the sterling and contributed to the selling bias.
The GBP/JPY cross traded with a mild negative bias through the first half of the European session and was last seen hovering near three-day lows, just above mid-154.00s.
The cross edged lower for the third consecutive session on Thursday and has now retreated nearly 100 pips from over one-week tops, around mid-155.00s touched on Tuesday. The Fed’s sudden hawkish turn drove flows away from perceived riskier assets. This was evident from a sharp pullback in the equity markets, which, in turn, benefitted the safe-haven Japanese yen.
On the other hand, sustained US dollar buying interest was seen as another factor behind the British pound’s relative underperformance. Apart from this, concerns about the EU-UK collision over Norther Ireland protocol and the UK government’s decision to push back the timeline for the final stage of easing lockdown measures further acted as a headwind for the sterling.
In the latest Brexit-related developments, UK Prime Minister Boris Johnson said on Wednesday that they will have to take steps to make sure the post-Brexit trade between Britain and NI is uninterrupted. In the absence of any major market-moving economic releases from the UK, the GBP/JPY cross remains at the mercy of the broader market risk sentiment.
Nevertheless, the fundamental backdrop supports prospects for the resumption of the GBP/JPY pair’s recent corrective pullback from multi-year tops, around the 156.00 mark set in May. Hence, a subsequent fall back towards the 154.00 neighbourhood, or monthly lows, remains a distinct possibility.
