GBP/JPY flat-lines above mid-160.00s, eyes nearly two-week high touched on Monday

• GBP/JPY reverses an intraday dip to the 160.00 neighbourhood, though lacks follow-through.
• The monthly upbeat UK jobs data underpins the Sterling and acts as a tailwind for the cross.
• Recession fears, expectations for a hawkish shift by the BoJ benefit the JPY and caps gains.

The GBP/JPY cross attracts some dip-buying in the vicinity of the 160.00 psychological mark and turns neutral during the first half of the European session on Tuesday. The cross is currently placed just above the mid-160.00s and remains well within the striking distance of a two-week high touched on Monday.

A combination of factors provides a modest lift to the British Pound, which, in turn, is seen acting as a tailwind for the GBP/JPY cross. The US Dollar extends the overnight pullback from a multi-week top, which, along with the upbeat UK jobs data, underpins the Sterling. In fact, the UK Office for National Statistics reported that the number of people claiming unemployment-related benefits fell by 12.9K in January. Moreover, the previous month's reading was also revised down sharply to -3.2K from the 19.7k rise estimated originally.

Additional details of the report revealed that Average Earnings excluding bonuses were up 6.7% during the three months to December. Excluding the pandemic period, this is the fastest rise since records began in 2001 and adds pressure on the Bank of England (BoE) to deliver another interest-rate increase next month. This, along with the overnight breakout through the 159.40-159.50 horizontal resistance, supports prospects for a further near-term appreciating move for the GBP/JPY cross. That said, the emergence of some buying around the Japanese Yen (JPY) caps the upside.

The markets now seem to speculate that the possible Bank of Japan (BoJ) governor candidate Kazuo Ueda will dismantle the yield curve control sooner rather than later. Apart from this, looming recession risks continue to weigh on investors' sentiment and drive some haven flows towards the JPY. This, to a larger extent, helps offset the data, which showed that the Japanese economy grew less than expected in the fourth quarter. Hence, it will be prudent to wait for a strong follow-through buying around the GBP/JPY cross before positioning for any further appreciating move.

Technical levels to watch