GBP/JPY jumps to fresh daily high, bulls await sustained move back above 164.00 mark

• A combination of supporting factors assisted GBP/JPY to gain traction for the third straight day.
• A sharp USD corrective pullback from the multi-year peak extended support to the British pound.
• The risk-on impulse undermined the JPY’s relative safe-haven status and remained supportive.

The GBP/JPY cross maintained its bid tone through the first half of the European session and was last seen trading near the daily high, around the 163.70-163.85 region.

Following the overnight sharp pullback of nearly 150 pips from the three-day high, the GBP/JPY cross regained positive traction for the third successive day on Friday, though lacked bullish conviction. The US dollar witnessed aggressive long-unwinding trade and benefitted the British pound. On the other hand, the risk-on impulse undermined the Japanese yen's relative safe-haven status and acted as a tailwind for the GBP/JPY cross.

The Japanese yen was further pressured by the dovish Bank of Japan statement on Thursday. It is worth recalling that the Japanese central bank stuck to its ultra-loose policy setting and vowed to conduct daily operations to defend its “near-zero” target for 10-year bond yields. Moreover, the BoJ Governor Haruhiko Kuroda said that risks to the economy are skewed to the downside and showed readiness to ease policy further if necessary.

Despite the supporting factor, the GBP/JPY cross, so far, has struggled to attract strong follow-through buying amid diminishing odds for aggressive Bank of England rate hikes. Weak UK Retail Sales figures released last week highlighted that high inflation might have already started taking its toll on consumer spending. Adding to this, the flash PMI prints showed that the UK economy is under stress from the soaring cost of living.

The mixed fundamental backdrop makes it prudent to wait for sustained strength above the 164.00 mark before positioning for an extension of this week's solid bounce from the monthly low. In the absence of any major market-moving economic releases, the USD price dynamics will play a key role in influencing sterling. Traders will also take cues from the broader market risk sentiment for some short-term opportunities around the GBP/JPY cross.

Technical levels to watch