GBP/JPY prints six-year high near 161.00 on strong yields, UK Spring Budget, inflation eyed

• GBP/JPY remains on the front foot around multi-month high, recently sidelined.
• Global Treasury yields drop 11% from 2021 peak, marking the biggest fall on record.
• Hopes of Japan stimulus, mixed headlines over Russia-Ukraine probe buyers of late.
• UK CPI, Spring Budget will be important to watch, yields are the key.

Having rushed to the highest levels since May 2016, GBP/JPY bulls take a breather around 160.90 as markets await the key British data/events up for publishing amid Wednesday’s London session.

Alike other yen pairs, GBP/JPY’s latest rally could well be linked to the strong Treasury yields across the board. “The Bloomberg Global Aggregate Index, a benchmark for government and corporate debt, has fallen 11% from a high in early 2021. That’s the biggest decline from a peak in data stretching back to 1990, surpassing a 10.8% drawdown during the financial crisis in 2008,” said Bloomberg.

It’s worth noting that the US 10-year Treasury yields renew the highest levels since May 2019, around 2.41% at the latest while the 2-year counterpart prints 2.19% figure by the press time, after renewing three-year top to 2.198% before a few minutes.

Underpinning the latest bond round is the Fedspeak that keeps inflating expectations of faster rate hikes from the US central bank. Among them, St Louis Fed President, James Bullard and Cleveland Fed President Loretta Mester clearly showed signals of 50 basis points (bps) of a rate lift.

It should be noted that Yomiuri recently mentioned that the Japanese Prime Minister (PM) Fumio Kishida is expected to order the preparation of an additional economic stimulus package by the end of March, which in turn adds to the GBP/JPY upside. On the same line was news of the US-UK deal to eliminate tariffs on British steel and aluminum.

That said, covid woes in China and an extended war between Ukraine and Russia weigh on the GBP/JPY upside.

Moving on, Britain’s Consumer Price Index (CPI) data for February will be crucial for the GBP/JPY prices amid hopes of a faster rate hike by the Bank of England (BOE). Additionally important will be the UK’s Spring Budget which will be weighed on the government spending amid ballooning deficit.

Read: UK Inflation Preview: Another hit to British households, and to the pound?

"Sunak is likely to announce a 'relatively modest' increase in defense spending, in line with inflation, after security became a priority for British voters following Russia’s invasion of Ukraine last month," said Citibank ahead of the event.

Technical analysis

A clear upside break of the 10-month-old rising trend line, around 160.30 by the press time, directs GBP/JPY buyers towards the May 2013 peak of 163.90.