GBP/JPY extends recovery towards 164.00 on firmer yields, focus on Downing Street

• GBP/JPY grinds higher after rising the most in 13 days.
• UK’s PM Boris Johnson’s resignation from Conservative Party placates political trauma but search for successor probe the optimism.
• Market sentiment improves amid an absence of fresh catalysts suggesting more economic hardships.
• Biden’s meeting with advisors on China tariffs could join risk catalysts to entertain traders.

GBP/JPY holds onto the previous day’s gains at around 163.60 during the initial hour of Friday’s Tokyo open. The cross-currency pair recently cheered easing political drama at Downing Street and firmer US Treasury yields, not to forget the US dollar easing, to recall the buyers amid the sluggish Asian session.

After multiple resignations and a strong push from the cabinet, UK PM Boris Johnson finally resigned from the post of the UK Conservative Party Leader the previous day. The action gives rise to a sigh of relief among the rebels and assures an absence of much political damage. However, the search for a successor and a naïve cabinet, with multiple new appointments, keep the risk-on mood challenged.

Risk-aversion also eased the previous day as major policymakers repeated previous comments while trying to tame the recession fears. Also keeping the market hopeful were headlines concerning China and mixed data from the US.

China is up for $220 billion of stimulus with unprecedented bond sales, per Bloomberg. On the same line was news that diplomats from the US and China are up for meeting personally after the latest virtual meeting cited progress in trade talks. With this, Beijing is optimistic that it can help ease the US its inflation problem by solving the supply-chain riddle, the same gained fewer accolades from the experts though.

It should be noted that the recently softer Japan Current Account balance for May, ¥128.4B versus ¥185.6B expected, also allows the GBP/JPY pair to remain firmer. Furthermore, the broad US dollar pullback and the market’s preparation for today’s US jobs report could also be cited as favoring the pair prices of late.

Amid these plays, the US Treasury yields regain upside momentum and the Wall Street benchmarks closed with gains. However, the S&P 500 Futures print mild losses by the press time.

Looking forward, GBP/JPY traders should pay attention to the UK politics and Brexit headlines, not to forget the recession woes, for fresh impulse.

Technical analysis

A clear upside break of the 50-DMA, around 162.85 by the press time, directs GBP/JPY buyers towards a two-week-old resistance line, close to 164.15 at the latest.