GBP/JPY rallies beyond 154.00 mark, highest since late June

• A combination of factors pushed GBP/JPY higher for the third successive session on Monday.
• The British pound got a strong boost after the BoE signalled that it could hike rates this year.
• The widening of the UK-Japanese bond spread weighed on the JPY and remained supportive.

The GBP/JPY cross continued scaling higher through the early European session and shot to the highest level since June 28, around the 154.20-25 region in the last hour.

The cross built on last week's strong bullish momentum and gained follow-through traction for the third successive session on Monday. This also marked the sixth day of a positive move in the previous seven and was sponsored by a combination of factors. The British pound was underpinned by comments by the Bank of England (BoE) officials, signalling an imminent interest rate hike.

Michael Saunders, one of the most hawkish members of the BoE's Monetary Policy Committee, suggested in remarks published Saturday that investors were right to bring forward bets on rate hikes. Earlier Governor Andrew Bailey warned of a potentially very damaging period of inflation unless policymakers take action, shifting the market focus to the upcoming policy meeting in November.

The money markets now seem to have fully priced in a 25bps BoE rate hike in December. This was evident from a spike in the UK 10-year gilt yield, which rose to the highest level since May 2019, at 1.204% and widened the UK-Japanese government bond yield spread. The yield on the 10-year Japanese government bond remained near zero due to the Bank of Japan's yield curve control policy.

Apart from this, the underlying bullish sentiment in the financial markets turned out to be another factor that weighed heavily on the safe-haven Japanese yen and benefitted the GBP/JPY cross. Monday's strong move up could further be attributed to some technical buying on a sustained move beyond the 152.60-80 resistance zone, setting the stage for additional gains.

In the absence of any market-moving economic releases from the UK, the GBP/JPY cross seems all set to prolong its appreciating move. That said, extremely overbought RSI on short-term charts makes it prudent to wait for some intraday consolidation or a modest pullback before placing fresh bullish bets.

Technical levels to watch