GBP/JPY rises to five-month high above 158.00 on strong yields

• GBP/JPY takes the bids to refresh multi-day high, prints three-day uptrend.
• US 10-year, 2-year Treasury yields rise to the highest levels since May 2019.
• Hawkish Fedspeak, inflation fears propel bond coupons, market sentiment dwindles after recently mixed headlines from Russia, Ukraine.
• Risk catalyst, bond market moves are crucial for near-term directions.

GBP/JPY poke October 2021 top while taking the bids around 158.20, up 0.52% intraday heading into Tuesday’s London open.

In doing so, the cross-currency pair cheers the yen’s broad weakness, mainly due to the firmer US Treasury yields. Also favoring the pair are the recent positive headlines from Moscow and Kyiv.

The US 10-year Treasury yields and the 2-year counterpart both poke the highest levels last seen during May 2019, taking the bids near 2.33% and 2.17% respectively level by the press time.

Fears of the Fed’s aggression in rate hikes and inflation woes seem to underpin the latest bond rout. Atlanta Fed President Bostic and Richmond Fed’s Barkin promoted the US central bank’s ability to restrain inflation by indirectly signaling a faster pace of the rate hike. However, the comments from Fed Chair Jerome Powell who said, “The Fed will raise rates by more than 25bps at a meeting or meetings if necessary,” offered a major upside momentum to the T-bond coupons.

Additionally fueling the bond yields are comments from International Monetary Fund’s (IMF) Asia-Pacific Director Changyong Rhee who said, “The US has the room to raise interest rates.” Furthermore, firmer US inflation expectations, as portrayed by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, exert additional downside pressure on the bonds.

It’s worth noting, however, that Russia’s second coupon payment, as signaled by Reuters’ source, joined Ukraine President Volodymyr Zelenskyy’s readiness to discuss commitment from Ukraine not to seek NATO membership to challenge the pair bears of late. Previously, Ukraine President Zelenskyy mentioned that no immediate decision is possible on occupied Ukrainian territory per Interfax. Additionally, US President Joe Biden also cited fears of a cyberattack against the US.

Moving on, the UK’s headlines inflation and preliminary PMIs for March will add a burden to the watcher’s list.

Technical analysis

A clear upside break of a five-month-old descending trend line, around 157.30 by the press time, helps GBP/JPY bulls to attack the 2021 peak of 158.22. However, overbought RSI and June 2016 peak surrounding 159.20 will challenge the pair’s upside targeting the 160.00 psychological magnet.