GBP/JPY sticks to gains near daily high, holds comfortably above mid-162.00s

• GBP/JPY gains some positive traction on Friday and recovers further from the weekly low.
• Mostly better-than-expected UK macro data benefits the British pound and offers support.
• The offered tone surrounding the safe-haven JPY remains supportive of the positive move.

The GBP/JPY cross builds on the overnight goodish bounce from the 161.25 area, or the weekly low and gains some positive traction on Friday. Spot prices hold steady above mid-162.00s following the release of mostly better-than-expected UK macro data, though lack bullish conviction.

The British pound draws some support from the Preliminary UK GDP report, which showed that the economy shrank 0.1% during the second quarter of 2022 as compared to the 0.2% fall estimated. On an annualized basis, the UK GDP growth stood at 2.9% against the 2.8% anticipated. Furthermore, the UK Manufacturing and Industrial Production figures surpassed expectations, which, in turn, acted as a tailwind for the GBP/JPY cross.

The Index of services, however, declined by -0.4% 3M/3M in June and missed consensus for a 0.9% rise. Adding to this, the negative monthly readings validate the Bank of England's gloomy economic outlook and act as a headwind for the GBP/JPY cross. It is worth recalling that the UK central bank last week painted a particularly bleak picture and indicated that a prolonged recession would start in the fourth quarter.

The downside, however, remains cushioned amid the offered tone surrounding the Japanese yen. A big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks, along with signs of stability in the financial markets, turn out to be key factors undermining the safe-haven JPY.

The mixed fundamental backdrop warrants some caution for aggressive bullish traders. Moreover, the recent range-bound price action witnessed over the past two weeks or so points to indecision among trades. This further makes it prudent to wait for strong follow-through buying before positioning for any further gains.

Technical levels to watch