GBP/JPY holds firm below highs of the day, stalling between 161.70/97

• GBP/JPY's rally is capped into a sideways consolidation near 161.80.
• The focus is on US yields, Ukraine and BoE outlook. 

At 161.79, GBP/JPY is nearly 0.5% at the time of writing, after travelling from a low of 160.49 to reach a high of 161.97.  The yen is under pressure as US yields and the dollar climb. Yields took off after US Federal Reserve Governor Lael Brainard put the focus back on the possibility of aggressive monetary policy tightening ahead of tomorrow's minutes of the prior Fed meeting. 

Brainard said she expects rapid reductions to the Fed's balance sheet alongside methodical increases to the benchmark rate. This has sprung life into the US dollar and the yen is bearing the brunt of it. GBP/USD is also under pressure which has left GBP/JPY trading sideways in the past few hours of late-morning US trade. 

Domestically, the pound net short GBP positions increased for a fourth week as concerns rise as to the cost of living crisis in the UK. Soaring global energy and food prices are a concern. On the heels of the Chancellor’s mini-budget in March the focus has switched to the cost of living crisis in the UK. This is questioning how many more rate hikes the BoE can announce this cycle.

''The Bank of England and market economists have warned that UK inflation could peak at 8% in the coming months and, due to the impact of the Russia/Ukraine conflict, both energy prices and headline inflation may remain elevated for longer, analysts at Rabobank said.  

Meanwhile, analysts at ING Bank argued that “adverse energy developments caused by new sanctions might take a toll on GBP this week, and cable could make a decisive move below 1.31 by the weekend,” analysts at ING Bank said. 

Over the weekend, BoE’s Deputy Governor Cunliffe said that ''while he recognizes the risk of second-round effects and that further tightening of monetary policy might be necessary, I am not at present convinced that we will inevitably have to lean heavily and constantly against an embedding of an inflationary psychology as we progress through this challenging period and as the impact.”