GBP/JPY fails again at 154.90 area

• Pound's rally is capped again right below 155.00. 
• BoE rate hike expectations are fuelling sterling's rally.
• GBP/JPY is expected to reach 159.80 area – Credit Suisse.
   

The British pound appreciated for the fifth consecutive day against a weaker Japanese yen on Wednesday, although the pair has been unable to breach the resistance area at 154.80/90.

The pound remains bid on BoE hike expectations

The sterling remains firm across the board, which has reflected in the 3.2% GBP/JPY rally witnessed over the last two weeks. Investors are anticipating that the Bank of England will be the first major central bank to start hiking interest rates following the COVID-19 crisis. The surging energy prices have boosted yearly inflation well beyond the Bank of England’s 2% target for price stability, which has prompted some BoE officials to openly suggest the possibility of accelerating rate hikes, therefore increasing GBP’s attractiveness for investors.

On the other end, the Japanese yen, particularly sensitive to monetary policy differentials is suffering against the GBP and the USD. With the Bank of Japan discarding the possibility of any rate hike for the foreseeable future, and with the yield curve under control, the JPY remains vulnerable against monetary tightening expectations in the rest of the world’s major economies.

GBP/JPY expected to keep rallying towards – 159.80

In a bigger picture, the FX Analysis team at Credit Suisse expect the pound to continue appreciating in the coming weeks, heading to levels near 160.00: “With a major base already seen established in February 2021, we look for a break above 156.62 to further reinforce the positive outlook, with resistance seen next at 159.80.”

Technical levels to watch