GBP/JPY ticks higher to 180.70-75 area ahead of UK CPI, focus remains on BoE on Thursday

• GBP/JPY attracts some buyers on Wednesday and stalls this week’s pullback from a multi-year top.
• The BoJ’s dovish stance undermines the JPY and lends support amid bets for a 25 bps BoE rate hike.
• Investors look to the UK consumer inflation data for a fresh impetus ahead of the BoE on Thursday.

The GBP/JPY cross edges higher during the Asian session on Wednesday and recovers a part of the previous day's slide to levels just below the 180.00 psychological mark. The cross currently trades with a mild positive bias, around the 180.70-180.75 area, and for now, seems to have stalled its retracement slide from the highest level since November 2015 touched on Monday.

The Japanese Yen (JPY) weakens a bit after the minutes of the April Bank of Japan (BoJ) meeting showed that the nine-member board saw the need to maintain ultra-loose policy given uncertainty over the global economy and the wage outlook. This turns out to be a key factor lending some support to the GBP/JPY cross. Apart from this, expectations that the Bank of England (BoE) will be far more aggressive in policy tightening to combat stubbornly high inflation act as tailwind spot prices.

In fact, the BoE is widely expected to hike the benchmark rates by 25 bps on Thursday, to 4.75% or the highest since April 2008. Moreover, the markets are pricing in the possibility of a bigger, 50 bps lift-off. The bets were reaffirmed by the upbeat UK jobs data released last week, which came in to show near-record wage growth and has led to concerns about inflationary pressures in the country. Hence, the focus will remain on the release of the latest UK consumer inflation figures on Wednesday.

The headline UK CPI is anticipated to come in at 0.4% for May, down from 1.2% registered in the previous month. Meanwhile, the yearly rate is seen easing to 8.5% as compared to the 8.7% print in April and core CPI, which excludes oil and food prices, is forecasted to hold steady at 6.8%. Any positive surprise will reaffirm hawkish BoE expectations and boost the British Pound. However, rumours that the BoJ will intervene to support the domestic currency could cap gains for the GBP/JPY cross.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the key central bank event risk - the BoE monetary policy meeting on Thursday. Nevertheless, the aforementioned fundamental backdrop favours bullish traders and suggests that the path of least resistance for the GBP/JPY cross is to the upside. Hence, any meaningful pullback could still be seen as a buying opportunity, which, in turn, should help limit the downside for spot prices, at least for now.

Technical levels to watch