GBP/JPY: Corrective bounce in yields strengthen run-up targeting multi-month high above 174.00

• GBP/JPY remains on the front foot near the highest levels since February 2016.
• BoE vs. BoJ divergence, recently upbeat UK data allow pair buyers to keep the reins.
• Yields recover amid market’s rush for bonds, Gold amid easy US Dollar, receding hawkish Fed bets.
• Risk catalysts are the key for fresh impulse.

GBP/JPY bulls keep the driver’s seat as the key flirt with the highest levels since February 2016, marked during the mid-week, as the quote rises for the second consecutive day heading into Friday’s London open. That said, the cross-currency pair prints mild gains near 174.20 by the press time.

While tracing the catalysts behind the pair’s latest run-up, the divergence between the monetary policy bias of the Bank of England (BoE) and the Bank of Japan (BoJ) gain major attention. The same factors become severe of late as the UK data arrives firmer while the Japanese officials defend easy-money policies.

On Thursday, the UK S&P Global/CIPS Manufacturing PMI improved to 47.1 for May versus 46.9 initial estimations. Further, the latest Bank of England (BoE) Monthly Decision Maker Panel (DMP) survey, released on Thursday, businesses in the UK see the year-ahead Consumer Price Index (CPI) at 5.9% in May vs 5.6% in April.

On the other hand, Bank of Japan Governor Kazuo Ueda said, “It will take some time to reach the 2% price goal,” while turning down the odds of a rate hike after the latest increase in the Japanese inflation data.

Elsewhere, the US 10-year Treasury bond yields that print the first daily gain in six as it bounces off a two-week low to 3.61% by the press time. On the same line, the two-year counterpart steadies near the weekly bottom surrounding 4.35% following a three-day downtrend.

Looking ahead, GBP/JPY traders should pay attention to the market’s risk appetite, as well as the US Treasury bond yields, for fresh impulse. Given the latest dynamics supporting the BoE hawks, the quote can stay on the way to refreshing the multi-month high.

Technical analysis

Although overbought RSI suggests a pullback in the GBP/JPY prices, the bulls can remain hopeful unless the quote stays beyond the previous resistance line stretched from October 2022, close to 172.30 by the press time.