GBP/JPY pares intraday losses, keeps the red around 150.00 mark amid COVID-19 woes

• GBP/JPY dropped sharply in reaction to reports about fresh COVID-19 restrictions in the UK.
• A positive risk tone undermined the safe-haven JPY and assisted the cross to pare losses.
• Diminishing odds for an imminent BoE rate hike support prospects for a further downfall.

The GBP/JPY cross recovered around 100 pips from the daily swing low, albeit struggled to capitalize on the move and was last seen trading around the 150.00 mark, down 0.10% for the day.

The cross witnessed aggressive selling during the mid-European session and dived to the 149.35 area amid reports about the imposition of fresh COVID-19 restrictions in the UK. This comes on the back of persistent Brexit-related uncertainties and dashed hopes for an imminent interest rate hike by the Bank of England, which, in turn, weighed heavily on the British pound.

Meanwhile, the global risk sentiment got a strong boost after Pfizer said that the third dose of their COVID-19 vaccine neutralized the Omicron variant in lab tests. This was evident from a sharp intraday rally in the equity markets, which undermined demand for the safe-haven Japanese yen and assisted the GBP/JPY cross to attract some buying at lower levels.

The attempted recovery, however, ran out of steam near the 150.35 region, warranting some caution for bullish traders. Even from a technical perspective, the GBP/JPY cross has been oscillating in a range over the past one week or so. Given the recent sharp fall, the range-bound price action might be categorized as a bearish consolidation phase.

Nevertheless, it will still be prudent to wait for a strong follow-through selling and a sustained break below the trading range support before positioning for any further depreciating move. In the absence of any major market-moving economic releases, developments surrounding the coronavirus saga might continue to influence the GBP/JPY cross.

Technical levels to watch