GBP/JPY recovers a few pips from multi-week low, down a little above 181.00 mark

• GBP/JPY drifts lower for the second straight day and slides to a fresh multi-week low on Monday.
• Expectations that the BoE is done raising rates undermine the GBP and exert pressure on the cross.
• Hope for a change in the BoJ’s YCC policy benefits the JPY and contributes to the ongoing decline.
• The downside seems limited as traders now await the BoJ and the BoE policy meetings this week.

The GBP/JPY cross remains under some selling pressure for the second successive day on Monday and drops to over a three-week low, around the 180.75 region during the first half of the European session. Spot prices, however, manage to rebound a few pips in the last hour and currently trade just above the 181.00 mark, still down over 0.15% for the day.

The British Pound's (GBP) relative underperformance comes on the back of expectations that the Bank of England (BoE) will leave the benchmark interest rate on hold at a 15-year high of 5.25% for the second successive time to support the ailing economy. In contrast, investors have been speculating about a possible change in the Bank of Japan's (BoJ) yield curve control (YCC) policy in the wake of a sign of broadening price pressures. This, in turn, is seen lending some support to the Japanese Yen (JPY) and contributing to the offered tone surrounding the GBP/JPY cross.

The Japanese central bank, however, is widely anticipated to stick to its negative policy rates. This, along with a positive tone around the equity markets, caps gains for the safe-haven JPY and helps limit the downside for the GBP/JPY cross. Traders also seem reluctant to place aggressive directional bets and prefer to wait on the sidelines ahead of the key central bank event risks – the BoJ policy meeting on Tuesday, followed by the BoE policy update on Thursday. This, in turn, warrants some caution for bearish traders and positioning for any further depreciating move.

From a technical perspective, the recent repeated failures to find acceptance above the 50-day Simple Moving Average (SMA) and the subsequent decline suggest that the path of least resistance for the GBP/JPY cross favours bearish traders. Moreover, oscillators on the daily chart have just started drifting in the negative territory and support prospects for further losses. Hence, some follow-through weakness towards the 180.40 intermediate support, en route to the 180.00 psychological mark, looks like a distinct possibility.

Technical levels to watch