GBP/JPY struggles for a firm direction, flat-lined just above 160.00 mark

• GBP/JPY witnessed good two-way price moves through the first half of the European session.
• Better-than-expected UK GDP print underpinned sterling and extended support to the cross.
• Fading hopes for diplomacy in Ukraine benefitted the safe-haven JPY and acted as a headwind.

The GBP/JPY cross seesawed between tepid gains/minor losses through the first half of the European session and was last seen trading in the neutral territory, around the 160.00 mark.

The cross showed some resilience below the 200-hour SMA and attracted some dip-buying near the 159.45 region on Thursday, though the uptick lacked bullish conviction. The British pound drew some support from an upward revision of the UK GDP print, showing that the economy expanded by 1.3% during the final quarter of 2021 as against the 1% estimated previously. This, along with the emergence of some selling around the Japanese yen, extended support to the GBP/JPY cross.

That said, speculation that officials were uncomfortable and would respond to the Japanese yen's recent weakness, along with fading hopes for diplomacy in Ukraine acted as a headwind for the GBP/JPY cross. In fact, a Kremlin spokesperson said that they have not noticed anything that looks like a breakthrough in negotiations. Moreover, an adviser to Ukraine’s President noted that Russia is transferring forces from Kyiv to encircle troops and launch attacks in the eastern part of the country.

Apart from this, the growing prospect of new Western sanctions against Russia tempered investors' appetite for perceived riskier assets. This was evident from the prevalent cautious mood around the equity markets, which tends to benefit traditional safe-haven assets, including the JPY. Moreover, the fact that the Bank of England had softened its tone on the need for further rate hikes should further hold back bulls from placing fresh bets around the GBP/JPY cross.

Nevertheless, the pair, for now, has stalled its recent sharp pullback from the 164.65 area, or the highest level since May 2016 touched earlier this week and remains at the mercy of developments surrounding the Russia-Ukraine saga. The incoming geopolitical headlines will play a key role in driving the broader market risk sentiment and demand for the safe-haven JPY, which, in turn, should provide some impetus to the GBP/JPY cross.

Technical levels to watch