GBP/JPY hits fresh multi-week high on stronger UK wage growth data, lacks follow-through

• GBP/JPY touches a five-month high on Tuesday, albeit lacks follow-through buying.
• A generally positive risk tone undermines the safe-haven JPY and remains supportive.
• The mixed UK jobs data fails to impress bulls or provide a fresh impetus to the cross.
• Traders also seem reluctant ahead of the UK CPI report and the BoE meeting this week.

The GBP/JPY cross edges higher for the fifth successive day and climbs to a five-week high, around the 169.25 region during the early European session.

A generally positive risk tone, bolstered by the easing of COVID-19 curbs in China, continues to weigh on the safe-haven Japanese Yen and acts as a tailwind for the GBP/JPY cross. The British Pound, on the other hand, draws support from stronger UK wage growth figures, which suggests that the Bank of England will continue to raise borrowing costs to combat stubbornly high inflation.

The UK Office for National Statistics (ONS) reported that Average Weekly Earnings, excluding bonuses, rose by +6.1% during the three months to October as compared to +5.8% in the previous month. The gauge including bonuses edged higher to 6.1% in October from 6.0% in September. This helps offset an uptick in the unemployment rate and an unexpected rise in the claimant count change.

That said, a bleak outlook for the UK economy acts as a headwind for the Sterling Pound and keeps a lid on any further gains for the GBP/JPY cross. In fact, British Finance Minster Jeremy Hunt told BBC News on Monday that the UK economy is likely to get worse before it gets better. Traders also seem reluctant to place aggressive bets ahead of this week's key data/central bank event risk.

The latest UK consumer inflation figures are due for release on Wednesday. This will be followed by the Bank of England meeting on Thursday. This, in turn, warrants some caution for bullish traders and positioning for any further appreciating move for the GBP/JPY cross. The fundamental backdrop, however, suggests that any meaningful dip might be seen as a buying opportunity and remain limited.

Technical levels to watch