GBP/JPY climbs beyond 185.00 after slightly better UK GDP print, lacks follow-through

• GBP/JPY regains positive traction on Friday and reverses a part of the overnight slide.
• The BoJ’s dovish stance is seen undermining the JPY and lending support to the cross.
• The better-than-expected UK GDP print also contributes to the modest intraday uptick.

The GBP/JPY cross attracts some dip-buying near the 184.80 region on Friday and for now, seems to have stalled the overnight retracement slide from the vicinity of the weekly top. Spot prices stick to modest intraday gains through the first half of the European session and currently trade around the 185.20 region, up 0.15% for the day.

The Japanese Yen (JPY) continues with its relative underperformance in the wake of the Bank of Japan's (BoJ) dovish stance and turns out to be a key factor acting as a tailwind for the GBP/JPY cross. The British Pound (GBP), on the other hand, gets a minor lift from a slightly better than UK GDP print, though expectations that the Bank of England (BoE) will soon start cutting interest rates keep a lid on any meaningful appreciating move.

The UK Office for National Statistics reported that the economy stagnated in the third quarter of 2023. The reading, however, was slightly better than the 0.1% contraction anticipated. Adding to this, the yearly growth rate stood at 0.6% as compared to 0.5% expected. This helps ease worries about a looming recession and to a larger extent, overshadows the disappointing release of UK Manufacturing and Industrial Production figures.

Bulls, however, seem reluctant to place aggressive bets around the GBP/USD pair in the wake of mixed signals about the BoE's future rate-hike path. BoE's Chief Economist Huw Pill said earlier this week that the current market pricing for a first-rate cut in August 2024 does not seem totally unreasonable. In contrast, BoE Governor Andrew Bailey said on Thursday that it is too soon to discuss easing policy on the back of high inflation.

Furthermore, speculations about a potential intervention in FX markets by Japanese authorities contribute to capping the upside for the GBP/JPY cross. Hence, it will be prudent to wait for strong follow-through buying before positioning for an extension of the move-up witnessed over the past two weeks or so. Even from a technical perspective, the recent repeated failures ahead of the 186.00 mark warrant caution for bullish traders.

Technical levels to watch