GBP/JPY extends recovery from two-month lows after BoE decision

• Bank of England keeps rates unchanged at 5.25% as expected. 
• Pound rises across the board after BoE decision. 
• GBP/JPY trims losses and rises above 180.00. 

The GBP/JPY extended its recovery from two-month lows, reaching levels above 180.00 following the Bank of England's (BoE) decision to leave interest rates unchanged. The currency pair found a bottom earlier at 178.33, driven by a stronger Japanese Yen across the board due to lower Treasury bond yields. After the BoE announcement, the British Pound gained momentum and accelerated its recovery.

As expected, the BoE maintained the interest rate at 5.25%. Three members of the Monetary Policy Committee voted in favor of a rate hike. The central bank emphasized that interest rates needed to remain high for an extended period. The BoE stated, "further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures."

Market participants await now the decision of the European Central Bank (ECB) and important economic data from the United States, which includes the weekly Jobless Claims report and Retail Sales.

Technical outlook

The GBP/JPY is rebounding from two-month lows, and from near the 200-day Simple Moving Average (SMA). A daily close below the 178.00 level would indicate further weakness. In the daily chart, the overall bias leans towards the downside, but there is potential for the rebound to continue, supported by shorter-term technical indicators.

On the 4-hour chart, both the Relative Strength Index (RSI) and Momentum have turned upwards. The cross is currently trading around the 180.00 area, and if it manages to hold above, the next significant barriers can be found at 180.55 and 181.20. A rally beyond 182.20 would improve the outlook for the Pound. However, bearish pressure is likely to reappear if GBP/JPY slides below 178.60.

GBP/JPY 4-hour chart 

Technical levels