GBP/JPY flirts with one-week high, struggles to capitalize on the move beyond mid-161.00s

• GBP/JPY attracted some dip-buying on Tuesday and turned positive for the third straight day.
• A combination of factors undermined the JPY and remained supportive of the intraday uptick.
• Modest USD weakness, upbeat UK PMI benefitted the GBP and provided an additional boost.

The GBP/JPY cross held on to its modest intraday gains through the first half of the European session and was last seen trading just a few pips below the 161.50 area, or the one-week high. 

The cross attracted some dip-buying near mid-160.00s on Tuesday and moved into positive territory for the third successive day. A combination of factors undermined the Japanese yen and turned out to be a key factor that acted as a tailwind for the GBP/JPY cross amid modest pickup in demand for the British pound.

The Bank of Japan Governor Haruhiko Kuroda reiterated that the central bank will offer to buy an unlimited amount of 10-year JGBs if the rise in long-term interest rates is rapid. This, along with a generally positive tone around the equity markets, drove flows away from traditional safe-haven assets, including the JPY.

On the other hand, an upward revision of the UK Services PMI lifted sterling amid subdued US dollar price action and further acted as a tailwind for the GBP/JPY cross. That said, the fact that the Bank of England had softened its tone on the need for further rate hikes should further hold back the GBP bulls from placing fresh bets.

Moreover, the prospect of more Western sanctions on Russia over its alleged war crimes in Ukraine should keep a lid on any optimistic move in the markets. Hence, any subsequent move up is likely to confront stiff resistance and remain capped near the 162.00 mark, warranting caution before positioning for any further gains.

Technical levels to watch