GBP/JPY slides further below mid-188.00s after UK GDP confirms technical recession

• GBP/JPY extends this week’s corrective decline from the 190.00 mark or a multi-year top.
• A technical recession in the UK revives bets for an early BoE rate cut and weighs on the GBP.
• Verbal intervention from Japanese authorities benefits the JPY and contributes to the downfall.

The GBP/JPY cross remains under heavy selling pressure for the second successive day on Thursday and retreats further from its highest level since August 2015, around the 190.00 psychological mark touched earlier this week. The downward trajectory picks up pace in reaction to the disappointing UK GDP print and drags spot prices to the 188.30 area, or a multi-day low during the first half of the European session.

The UK Office for National Statistics reported that the economy unexpectedly contracted by 0.3% in the final three months of 2023. This follows a 0.1% drop in GDP during the July-September period, meaning that the economy entered a technical recession. Against the backdrop of Wednesday's softer UK consumer inflation figures, the latest data reaffirms market bets that the Bank of England (BoE) will start cutting interest rates soon and continues to undermine the British Pound (GBP).

The Japanese Yen (JPY), on the other hand, draws support from speculations about a potential intervention by authorities to stem the recent decline in the domestic currency. Apart from this, geopolitical tensions stemming from conflicts in the Middle East further benefit the safe-haven JPY and contribute to the offered tone surrounding the GBP/JPY cross. That said, reduced bets for an imminent shift in the Bank of Japan's (BoJ) policy stance might keep a lid on any meaningful downfall.

Provisional data released this Thursday showed that Japan's GDP contracted by 0.4% during the October-December period, missing market expectations for a 1.4% growth by a huge margin. This comes on top of the previous quarter's slump of 3.3%, confirming a technical recession and raising uncertainty about the likely timing of when the BoJ will exit the negative interest rates policy. This, in turn, warrants some caution before confirming that the GBP/JPY cross has formed a near-term top.

Technical levels to watch