GBP/JPY remains heavily offered below 185.00, seems vulnerable near one-week low

• GBP/JPY drifts lower for the fourth straight day and is pressured by a combination of factors.
• Expectations of a policy shift by the BoJ continue to boost the JPY and drag the cross lower.
• Bets that the BoE will cut rates in 2024 further contribute to Sterling’s underperformance.

The GBP/JPY cross remains under heavy selling pressure for the fourth successive day on Tuesday and drops to the 184.70 area during the Asian session, back closer to over a one-week low touched the previous day.

Investors now seem convinced that the Bank of Japan (BoJ) will almost certainly end its negative interest rate policy by early next year in the wake of higher inflation, which remained above the 2% target for the 18th consecutive month in September. This is seen as a key factor behind the Japanese Yen's (JPY) relative outperformance and continues to exert downward pressure on the GBP/JPY cross.

The British Pound (GBP), on the other hand, is weighed down by speculations that the Bank of England (BoE) will start cutting interest rates from their 15-year peak in the wake of looming recession risks. The bets were reaffirmed by weaker UK Retail Sales figures, which fitted with the darkening outlook for Britain's economy. This further contributes to the offered tone surrounding the GBP/JPY cross.

Even the upbeat market mood, which tends to undermine demand for the traditional safe-haven JPY, also does little to ease the bearish pressure or lend any support to spot prices. The GBP/JPY cross has now retreated over 350 pips from its highest level since November 2015, around the 188.25-188.30 region touched last week. Moreover, the lack of any buying supports prospects for further downside.

That said, the prevalent selling bias surrounding the US Dollar (USD) is seen benefitting the Sterling. This, in turn, could lend some support to the GBP/JPY cross, though the fundamental backdrop suggests that the path of least resistance is to the downside. Market participants now look forward to the BoE's Monetary Policy Report Hearings on Wednesday for some meaningful impetus.

Technical levels to watch