GBP/JPY sticks to modest intraday gains above mid-161.00s, lacks bullish conviction

• GBP/JPY gains some positive traction on Tuesday, albeit lacks follow-through buying.
• Weaker Japanese Manufacturing PMI undermines the JPY and lends some support.
• Expectations that the BoE rate-hiking cycle is nearing the end cap any further gains.
• Traders also seem reluctant ahead of the nominated BoJ Governor Ueda's testimony.

The GBP/JPY cross edges higher for the third straight day on Tuesday and sticks to its mildly positive bias through the early European session. The cross is currently placed just above the 161.50 area and remains well within the striking distance of a nearly two-month high touched last week.

The Japanese Yen (JPY) weakens a bit in reaction to mixed domestic data and turns out to be a key factor lending some support to the GBP/JPY cross. In fact, the flash Manufacturing PMI fell more-than-expected, to 47.4 in February, offsetting a rise in the service sector activity. That said, looming recession risks, along with geopolitical tensions, help limit losses for the safe-haven JPY.

Apart from this, expectations that the Bank of England's (BoE) current rate-hiking cycle is nearing the end undermines the British Pound and contributes to capping the upside for the GBP/JPY cross. Traders also seem reluctant to place aggressive bets and prefer to wait on the sidelines ahead of the newly nominated head of the Bank of Japan (BoJ) Governor Kazuo Ueda's testimony on Friday.

Market participants will closely scrutinize Ueda's view on the future of yield curve control (YCC) and super-easy monetary policy. This will play a key role in influencing the JPY and provide a fresh directional impetus to the GBP/JPY cross. In the meantime, Tuesday's release of the flash UK PMI prints for February might provide some impetus and allow traders to grab short-term opportunities.

Technical levels to watch