GBP/JPY slumps 100 pips to sub-181.00 on downbeat UK inflation, yields

• GBP/JPY takes offers to refresh intraday low down for the third consecutive day.
• UK CPI pushes back hawkish BoE bias by falling to 7.9% YoY in June.
• Dovish comments from BoJ’s Ueda, market’s cautious optimism previously favored GBP/JPY bulls.
• Risk catalysts, Japan inflation will be crucial to watch for clear directions.

GBP/JPY reverses the day-start recovery towards refreshing the intraday trough to around 180.80 amid early Wednesday morning in London, justifying the unwelcome prints of the UK inflation. Adding strength to the downside bias are the weaker Treasury bond yields. However, the market’s cautious optimism and dovish bias surrounding the Bank of Japan (BoJ) prod the cross-currency sellers of late.

UK inflation per the Consumer Price Index (CPI) slides to 7.9% YoY in June versus 8.2% expected and 8.7% prior. More importantly, the Core CPI defies the 7.1% market forecast and previous readings by declining to with 6.9% YoY figures for the said month.

With this, the hawkish bias about the Bank of England (BoE) remains doubtful and drowns the GBP/JPY during the three-day losing streak.

On the other hand, Bank of Japan (BOJ) Governor Kazuo Ueda spoke at a news conference after the G20 meeting in India on Tuesday while stating that there was still some distance to sustainably achieve the 2% inflation target, defending the easy-money policy in turn.

It’s worth noting that fears surrounding Japan Prime Minister (PM) Fumio Kishida’s cabinet reshuffle and pessimism among the big industrial houses from Tokyo weigh on the Japanese Yen (JPY) and challenge the GBP/JPY bears.

Elsewhere, the market sentiment remains cautiously optimistic amid the upbeat performance of the equities backed by the positive mood at the banks, as well as China headlines, which in turn puts a floor under the GBP/JPY prices.

While portraying the mood, Japan’s Nikkei 225 rises more than 1.0% and the S&P500 Futures remain sidelined at the yearly high. However, the US 10-year and two-year Treasury bond yields stay pressured at 3.76% and 4.74% by the press time and prod the GBP/JPY bulls of late.

Having witnessed the initial market reaction to the UK inflation data, the GBP/JPY pair traders should watch the risk catalysts ahead of Friday’s Japan inflation statistics and British Retail Sales.

Technical analysis

A convergence of the 10-DMA and a fortnight-old descending trend line, around 181.65, challenges the GBP/JPY buyers despite the latest run-up.