GBP/JPY climbs to 156.70 area, back closer to over three-week high set on Wednesday

• A combination of factors assisted GBP/JPY to regain positive traction on Thursday.
• A more hawkish BoE decision last week continued acting as a tailwind for sterling.
• A positive risk tone undermined the safe-haven JPY and provided an additional lift.

The GBP/JPY cross built on its intraday ascent and climbed to a fresh daily high, around the 156.65-156.70 region during the early European session.

Following the previous day's pullback from an over three-week high, the GBP/JPY cross attracted fresh buying on Thursday and was supported by a combination of factors. The British pound continued drawing support from a more hawkish Bank of England decision last week. On the other hand, a generally positive tone around the equity markets undermined the safe-haven Japanese yen and pushed the cross higher.

It is worth recalling that the BoE hiked its benchmark interest rate by 25 bps to 0.50%. This marked the first back-to-back raises since 2004 and was backed by a more hawkish vote distribution, showing that four out of nine MPC members backed an aggressive 50 bps increase in borrowing costs. This, in turn, was seen as a key factor that acted as a tailwind for sterling and extended support to the GBP/JPY cross.

That said, fresh tensions over the Northern Ireland protocol of the Brexit agreement might hold back bullish traders from placing fresh bets and keep a lid on any meaningful gains. Investors might also be reluctant and prefer to wait on the sidelines ahead of Friday's heavyweight UK macro data, including the Prelim Q4 GDP print. This, in turn, warrants caution for bullish traders and positioning for any further gains.

Technical levels to watch