GBP/JPY retreats towards 163.00 on looming no-confidence vote in UK

• GBP/JPY eases from five-week high, snaps six-day uptrend.
• Tory rebels hints at enough letters to hold no-confidence vote.
• Market sentiment remains mixed as China-linked optimism battles hopes of Fed’s aggression.

GBP/JPY takes offers to renew intraday low during the first negative daily in seven as pessimism surrounding UK’s politics join mixed sentiment during Monday’s lackluster Asian session. In doing so, the cross-currency pair extends the previous day’s retreat from the late April high to 163.10 by the press time.

“Boris Johnson’s key allies are preparing to defend him in a challenge to his leadership, as they conceded it was increasingly likely that rebel Conservative MPs had reached the key threshold needed to trigger a vote of no confidence in the UK prime minister this week,” said the Financial Times (FT) during the weekend.

The news also states that should Johnson avoid a vote in the coming days, the focus will switch to the results of two crucial by-elections on June 23. The rebels believe that losing both would make a no-confidence vote inevitable.

Elsewhere, Beijing’s readiness to ease the virus-led activity controls joins the US preparations for announcing tariff relief for China to underpin cautious optimism in the market.

“Dine-in service in Beijing will resume on Monday, except for the Fengtai district and some parts of the Changping district, the Beijing Daily said. Restaurants and bars have been restricted to takeaway since early May,” reports Reuters. On the other hand, US Commerce Secretary Gina Raimondo said, per Reuters, “President Joe Biden has asked his team to look at the option of lifting some tariffs on China that were put into place by former President Donald Trump, to combat the current high inflation.”

Market sentiment soured on Friday after the strong US Nonfarm Payrolls (NFP) joined recently hawkish Fedspeak to propel the odds of a third 50 bps rate hike in September to 75% from 35% appeared last week.

Amid these plays, Wall Street benchmarks closed in the red and the US 10-year Treasury yields posted the first weekly gain in three whereas the S&P 500 Futures remain mildly bid at around 4,120 but yields fail to extend the gains near 2.95% by the press time.

Given the lack of major data/events, GBP/JPY prices are likely to take clues from risk catalysts, which in turn highlight Fed fears, Brexit and the UK politics, as well as the chatters surrounding the Bank of England’s (BOE), as important factors to watch for clear directions.

Technical analysis

A failure to cross the 61.8% Fibonacci retracement level of late April to early May downside, around 163.55, enables GBP/JPY bears to attack a fortnight-old support line near 163.00, a break of which could direct prices towards 50-DMA support near 161.90.