GBP/JPY struggles to defend 163.00 amid Brexit, pre-BOE jitters

• GBP/JPY retreats from intraday high, probes three-day uptrend.
• UK PM Johnson pushes EU over NI Protocol compromise.
• Post-Fed rally of Wall Street benchmarks pleased buyers earlier.
• BOE is up for a 25 bps rate hike but Bailey’s comments will be more important for clear directions.

GBP/JPY feels the heat of pre-BOE anxiety during Thursday’s Asian session as the cross-currency pair eases to 163.20, consolidating the three-day gains. In addition to the cautious mood ahead of the Bank of England (BOE) monetary policy decision, risk-negative headlines concerning Russia and covid also test the pair buyers of late.

The quote refreshed a three-day high during the aftermath of the US Federal Reserve’s (Fed) monetary policy as equities rallied on Fed Chair Powell’s rejection of a rate hike worth 75 basis points (bps) in upcoming meetings. It should be noted that the matched market forecasts by announcing 50 basis points (bps) of a lift to the benchmark rate, as well as conveyed quantitative tightening to begin from June, initially with a $47.5 billion cap per month.

Although the Wall Street benchmarks printed 3.0% average gains, S&P 500 Futures drops 0.15% by the press time as markets shift attention from the hopes of fresh liquidity infusion due to the disappointment from the Fed.

Talking about the risk-negative headlines, UK PM Boris Johnson renewed Brexit woes by giving the European Union (EU), “one last chance” to compromise over Northern Ireland (NI) protocol, per The Times. The move could have been a political gimmick as NI elections begin on Thursday. Elsewhere, the EU’s sixth round of sanctions on Russia and China’s covid woes, also challenge the market sentiment, as well as the GBP/JPY prices.

Moving on, the BOE is up for a 0.25% rate hike, as already conveyed in the previous meeting. However, the escalating inflation pressure pushes market players to seek something more than what’s promised, which in turn may disappoint GBP/JPY buyers if the “Old Lady” tracks the Fed.

Read: Bank of England Preview: Bailey set to bring sterling down with dovish hike

Other than the BOE, NI elections and geopolitical/covid news will also be important for the GBP/JPY traders to watch for clear directions.

Technical analysis

GBP/JPY bulls failed to cross the 21-DMA hurdle, around 163.75 at the latest, despite the recent run-up, which in turn keeps sellers hopeful to test the weekly ascending support line, close to 162.20 at the latest.