GBP/JPY retreats from three-week top towards 156.00, BOE’s Phill, yields in focus

• GBP/JPY consolidates the previous day’s gains around three-week top as yields ease from 2.5-year high.
• Brexit, political jitters in the UK joins Japan’s covid woes to challenge short-term pair moves.
• Comments from BOE Chief Economist Phill, market’s anxiety ahead of US CPI should be observed.

GBP/JPY pares weekly gains to 156.50 during a sluggish Asian session on Wednesday.

The cross-currency pair’s latest moves could be linked to the retreat in the global Treasury yields and market anxiety ahead of Thursday’s US inflation data, as well as the UK politics.

US 10-year Treasury yields jumped to the highest levels since July 2019 the previous day before recently easing to 1.945%. The bond coupon eased even after San Francisco Fed President Mary Daly favored the March rate hike in her latest speech. The policymaker additionally mentioned, “Fed can't be overly aggressive on rate increases,” while saying, “US inflation could get worse before it gets better.”

Elsewhere, the looming risk of a Russian invasion of Ukraine and the US-China trade tussles join Brexit and political woes in the UK to challenge the GBP/JPY moves. On the same line were covid fears in Japan.

Kyodo News said, “Tokyo and 12 other prefectures currently under a COVID-19 quasi-state of emergency have requested an extension to the measure set to end this weekend, the prefectural governments said Tuesday.”

On the other hand, UK PM Johnson’s cabinet reshuffle raised doubts even as Bloomberg said, “put Jacob Rees-Mogg in charge of delivering the benefits of Brexit in a mini-reshuffle of ministers that sought to shore up the U.K. prime minister’s support within the ruling Conservative Party.”

It’s worth noting that the latest report from the UK’s Public Accounts Committee (PAC) highlights Brexit disappointment ahead of the key talks on Friday. “Brexit has had a ‘clear impact’ on Britain's trade volumes and new border arrangements have added ‘costs’ to UK business,” said the report.

Moving on, a speech from Bank of England (BOE) Chief Economist Huw Pil will be crucial for short-term GBP/JPY moves while major attention will be given to the yields and gilts, with eyes on the US Consumer Price Index (CPI) for January.

Technical analysis

Unless declining back below a convergence of the 10-DMA and 21-DMA, around 155.50, GBP/JPY buyers remain hopeful to attack a downward sloping resistance line from late October, near 157.05 at the latest.