GBP/JPY flirts with multi-week low amid risk-off, holds above mid-154.00s

• A combination of factors dragged GBP/JPY to over a three-week low on Friday.
• The risk-off impulse benefitted the safe-haven JPY and exerted heave pressure.
• The UK political drama weighed on the GBP and contributed to the selling bias.

The GBP/JPY cross maintained its heavily offered tone and dropped to over a three-week low, around the 154.45 region during the Asian session.

The cross extended its recent sharp pullback from the vicinity of the 157.70 area, or the monthly top and continued losing ground for the fourth successive session on Friday. This also marked the seventh day of a negative move in the previous eight and was sponsored by reviving demand for the safe-haven Japanese yen.

Investors turned risk-averse amid concerns that a more aggressive policy tightening by the Fed would dent the earnings outlook for companies. This was evident from the recent corrective slide in the equity markets, which forced investors to take refuge in traditional safe-haven currencies and benefitted the JPY.

On the other hand, growing demands for UK Prime Minister Boris Johnson's resignation over a series of lockdown parties in Downing Street acted as a headwind for the British pound. This was seen as another factor that exerted additional pressure on the GBP/JPY cross and dragged spot prices to the lowest level since December 29.

That said, increasing bets for additional rate hikes by the Bank of England extended some support to the sterling. This, along with the announcement that COVID-19 restrictions in the UK would be lifted next week, helped limit any further losses and assisted the GBP/JPY cross to show some resilience below mid-154.00s, at least for now.

That said, the lack of any strong follow-through buying warrants some caution before positioning for any meaningful recovery for the GBP/JPY cross. Market participants now look forward to the UK monthly Retail Sales data for a fresh impetus. Apart from this, the broader market risk sentiment will be looked upon for some trading opportunities.

Technical levels to watch