GBP/JPY gains multi-year high amid BoE hawkish bets

• On Thursday, the GBP/JPY rocketed to a multi-year high of 179.40 for the first time since December 2015.
• Hot labour market and GDP data from the UK support a hawkish BoE.
• BoJ expected to keep its monetary policy unchanged.

The GBP/JPY gained more than 100 pips on Thursday, rallying to a high of 179.40 and then stabilizing at the 179.30 zone. In that sense, the GBP seems to be gaining ground on the back of hawkish bets on the Bank of England (BoE)  after strong labour-market and Gross Domestic Product (GDP) data which supports more rate hikes. On the other hand, policy divergence seems to be weakening the Yen ahead of the Bank of Japan (BoJ) meeting on Friday.

British Yields hold the Pound afloat ahead of next week's BoE meetings

Along this week, labour-market data from the UK showed that unemployment decreased in the three months prior to April while average earnings, including and excluding bonuses, accelerated during the same period. In addition, monthly expanded by 0.2% in April after a decline in March while growing by 0.1% in the three months prior to April.

As the labour market remains robust and economic activity resilient, investors are expecting that the BoE will take a more aggressive path in its fight for inflation. In that sense, according to WIRP (World Interest Rate Probability), the market suggests that a 25 bps hike to 4.75% its already priced, which has small odds of a 15% of a larger 50 bps hike for next week meeting and that a 25 bps hike is already priced in for August, September and November.

Meanwhile, the British yields saw gains across the curve. The 10-year bond yield rose to 4.41%, while the 2-year yield stood at 4.93% and the 5-year yielded 4.56%, respectively. 

GBP/JPY Levels to watch

According to the daily chart, the GBP/JPY holds a bullish outlook for the short term, but the pair trading in multi-year highs and at overbought conditions signalled by the Relative Strength Index (RSI) suggest that a healthy downward correction may be on the horizon.

In case the pair continues to gain traction, the following resistance line up at the 179.50 area, followed then by the psychological mark at 180.00 and the 180.50 zone. On the other hand, if the pair corrects to the downside, immediate support levels are seen at the 177.40 area, followed by the psychological mark at 175.00 and the 20-day Simple Moving Average (SMA) at 174.05.

GBP/JPY Daily chart