GBP/JPY struggles to gain any meaningful traction, holds steady above 161.00 mark

• GBP/JPY edges lower for the second straight day, though lacks follow-through selling.
• Recession fears, expectations for a hawkish BoJ shift underpin the JPY and caps gains.
• Bets that the BoE’s current rate-hiking cycle is nearing the end favour bearish traders.

The GBP/JPY cross remains on the defensive for the second straight day on Thursday, albeit manages to hold above the overnight swing low. The cross trades around the 161.20 region heading into the European session and is influenced by a combination of diverging forces.

A modest US Dollar weakness assists the British Pound to gain some positive traction, which, in turn, is seen lending some support to the GBP/JPY cross. The Japanese Yen (JPY), on the other hand, is underpinned by speculations that the Bank of Japan (BoJ) governor candidate Kazuo Ueda will dismantle the yield curve control. Apart from this, looming recession risks further benefit the JPY's relative safe-haven status and act as a headwind for the cross.

Furthermore, expectations that the Bank of England's (BoE) current rate-hiking cycle is nearing the end hold back traders from placing bullish bets around the British Pound and cap the GBP/JPY cross. The bets were lifted by softer-than-expected UK consumer inflation figures released on Wednesday, which could allow the UK central bank to soften its stance. This, in turn, favours bearish traders and supports prospects for some meaningful downside for the cross.

That said, the lack of any strong follow-through selling warrants some caution in the absence of any relevant market-moving economic releases from the UK. Hence, it will be prudent to wait for a sustained break below the overnight swing low, around the 160.65 region, before confirming that the GBP/JPY pair's recent move-up witnessed over the past two weeks or so has run its course.

Technical levels to watch