GBP/JPY climbs back closer to weekly high, around 156.70 area amid risk-on

• GBP/JPY gained traction for the second straight day and was supported by a combination of factors.
• A generally positive risk tone undermined the safe-haven JPY and extended some support to the cross.
• Weaker USD, BoE rate hike bets benefitted sterling and remained supportive of the intraday move up.

The GBP/JPY cross extended its steady intraday ascent and climbed to the top end of the weekly trading range, around the 156.70 region during the first half of the European session.

A combination of factors assisted the GBP/JPY cross to gain traction for the second successive day on Wednesday and build on the overnight rebound from mid-155.00s, or over one-week low. A recovery in the global risk sentiment undermined the Japanese yen's relative safe-haven status and acted as a tailwind for spot prices. Apart from this, a goodish pickup in demand for the British pound provided an additional lift to the cross.

The nervousness over the worsening situation in Ukraine eased after a Kremlin spokesperson said on Tuesday that Russia is still open to diplomacy and has an interest in that. Apart from this, the fact that new economic sanctions on Russia were not as bad as feared further boosted investors' confidence. This was evident from a generally positive tone around the equity markets, which drove flows away from traditional safe-haven assets.

The upbeat market mood also weighed on the US dollar, which, along with rising bets for additional interest rate hikes by the Bank of England extended some support to sterling. The expectations were reinforced by hawkish comments from BoE Deputy Governor Dave Ramsden, saying that some further tightening seems appropriate in the coming months. This was seen as another factor that pushed the GBP/JPY cross higher on Wednesday.

The fundamental backdrop seems tilted in favour of bullish traders, though the risk of an imminent Russian invasion of Ukraine warrants some caution. Apart from this, the lack of progress in talks to resolve the problems with the Northern Ireland protocol of the Brexit agreement might cap gains for the GBP/JPY cross. Hence, it will be prudent to wait for some follow-through buying before positioning for any further appreciating move.

Technical level to watch