GBP/JPY rallies for fourth session as rising global yields pressure yen, but fails to hold above 162.00

• GBP/JPY was set to gain for a fourth successive session on Wednesday despite risk-off, but failed to hold above 162.00.
• Rising global yields continues to undermine the yen, but dovish BoE vibes may cap GBP/JPY’s further upside potential.

GBP/JPY was set to climb for a fourth successive session on Wednesday, as the uptrend in global yields continued, preventing the yen from benefitting from safe-haven inflows as US equity markets tumbled amid concerns about the hawkish Fed. The pair at one point rallied as high as the 162.20s but has since slipped back to the 161.80s, with on-the-day gains now eroded to about 0.2%.

That leaves GBP/JPY trading 0.7% higher on the week, with the pair having found decent buying interest when it broke below the 160.00 mark briefly at the end of last week. While the general trend towards higher yields globally is likely to keep the pair supported, FX strategists are unconvinced as to how much higher GBP/JPY can push given the increasingly dovish sounding BoE.

Indeed, the bank’s Deputy Governor Jon Cunliffe was on the wires earlier in the week and played down expectations for persistently high inflation whilst also upping his warnings about UK economic weakness. GBP/JPY ground higher despite these dovish comments, probably because they weren't a surprise given Cunliffe had been the lone dissenter against a rate hike at the BoE’s last meeting.

A speech from the BoE’s chief economist Huw Pill on Thursday (at 1315BST), who has in the past been one of the bank’s more hawkish-leaning members, will be a closely watched event. The BoE softened its tone on the need for further monetary tightening at its last meeting and Pill is likely to reflect this more cautious viewpoint. That could dampen the prospects for GBP/JPY to muster a lasting push above 162.00, a task that will be made even more difficult if equities continue their current tumble.