GBP/JPY bears take a breather below 160.00 as yields lick Fed-inflicted wounds, BoE in focus

• GBP/JPY seesaws around a fortnight low during three-day downtrend.
• US 10-year Treasury bond yields dropped the most in two weeks on dovish Fed.
• Hawkish concerns from BoJ, downbeat UK data and workers’ strikes weigh on prices.
• BoE is expected to announce 0.50% rate hike but hints for policy pivot will be crucial to watch.

GBP/JPY remains depressed around 159.20 even as further downside stalls ahead of the key Bank of England (BoE) Monetary policy announcements, up for publishing on Thursday. That said, the cross-currency pair traces a corrective move in the Treasury bond yields while portraying the market’s cautious mood ahead of the key events.

It’s worth noting that the US 10-year Treasury yields slumped the most in two weeks while testing the lowest levels in a fortnight the previous day after the US Federal Reserve (Fed) announced its dovish hike of 0.25%. The US central bank unveiled receding fears of inflation and Chairman Jerome Powell showed readiness for cutting the rates if inflation drops faster. The same propelled the risk-on mood and favored Wall Street bulls.

Other than the strong yields, hawkish comments from Bank of Japan (BoJ) officials also favored the GBP/JPY bears. That said, Bank of Japan's Deputy Governor Masazumi Wakatabe has said the BoJ will continue to conduct monetary policy to achieve 2% inflation accompanied by wage growth. The Japanese central bank has recently conducted multiple bond market moves to defend the Yields Curve Control (YCC) policy.

Elsewhere, the mass strikes by various UK workers' unions challenge the already struggling economy and exert downside pressure on the GBP/JPY prices. “Up to half a million British teachers, civil servants, and train drivers walked out over pay in the largest coordinated strike action for a decade on Wednesday, with unions threatening more disruption as the government digs its heels in over pay demands,” said Reuters.

On the same line, the downbeat prints of S&P Global/CIPS UK Manufacturing PMI, which confirmed a consecutive sixth monthly contraction in factory output by flashing 47.0 figure versus 46.7 initial forecasts also pleased the GBP/JPY bears. “Weak demand from clients at home and abroad plus strong price inflation and a shortage of raw materials and staff all weighed on production. Brexit and port problems hurt exports while demand from China was particularly weak,” S&P Global said per Reuters.

Against this backdrop, the S&P 500 Futures print mild gains while Japan’s Nikkei 225 follows the suit as traders await another round of central bank comments.

That said, the BoE’s 0.50% rate hike is already given and hence the Cable sellers will be more interested in hearing about the easy rate hikes, as well as policy pivot. Other than the BoE, risk catalysts and bond market moves will also be crucial for the GBP/JPY traders.

Technical analysis

A sustained reversal from the 50-day Exponential Moving Average (EMA), around 161.55 by the press time, directs GBP/JPY bears toward an upward-sloping support line from late September 2022, close to 157.40.