GBP/JPY probing monthly highs at 152.50, up 2.0% from earlier weekly lows as risk appetite improves

• GBP/JPY has surged from under 151.50 to test 152.50 and is now up nearly 2.0% from weekly lows near 149.50.
• Risk appetite has continued to improve significantly on Wednesday, driving the pair higher.

Risk appetite has picked up in recent hours amid strong US Consumer Confidence and GDP data, as well as following a string of recent positive pandemic-related updates, and this is being reflected in FX markets. Risk-sensitive currencies are, generally speaking, performing better than safe-haven currencies. GBP fits more in the former category, whilst the yen is most certainly viewed as a safe haven asset, so the net result on Wednesday has been a higher GBP/JPY.

Looking at the price action, the pair has rallied from underneath 151.50 during Asia Pacific and early European trade all the way to the 152.50 level and is currently probing last week’s highs. That marks an impressive 0.9% rally on the day and comes on the heels of Tuesday’s 0.8% rally. Indeed, since the Monday low just above 149.50 (when markets were in a much more risk-off mood), the pair has rallied nearly 2.0%, impressive stuff.

A mixed UK Q3 GDP report does not seem to have deterred the bulls on Wednesday. The UK economy grew at a 1.1% QoQ pace in Q3, data this morning showed, slower than the expected pace of 1.3%, though the YoY rate of growth was better than expected at 6.8% (forecasts were for 6.6%). A slowing of the pace of new infection growth in UK Omicron hotspot London and a Scottish study showing the virus is significantly less likely than delta to result in hospitalisation seems to have breather some optimism into sterling. Still, the pandemic is a significant risk to the UK economy and December survey data has shown it has already had a chilling impact that seems likely to last into January.

Whether that is enough to stop GBP/JPY blasting above 152.50, which has been a key balance for the price action area in recent months, is another thing. Given the proximity of Christmas Day on Saturday, North American and European volumes are expected to decline significantly over the next two days as market participants take time off for holiday celebrations. According to analysts at ING, the couple of weeks either side of Christmas day usually see low volatility for currencies, though they caution that “this year some seasonal tendencies will be mixed with the Omicron variant threatening to force new restrictions and markets still processing a week full of key central bank decisions”.