GBP/JPY pares intraday gains to over one-week high, still well-bid around mid-162.00s

• GBP/JPY gains traction for the fifth straight day and climbs to over a one-week high.
• UK government withdraws plan to scrap higher tax rate and boosts the British pound.
• Dovish BoJ continues to undermine the JPY and supports prospects for further gains.

The GBP/JPY cross builds on last week's strong recovery from its lowest level since February 2021 and scales higher for the fifth successive day on Monday. Spot prices, however, trim a part of the intraday gains to over a one-week high and retreat to mid-162.00s during the first half of the European session.

UK Finance Minister Kwasi Kwarteng confirmed that his government will not go ahead with a plan to scrap a 45% rate of income tax. This helps ease concerns about the UK's ballooning public debt and provides a goodish lift to the British pound. Apart from this, the prevalent selling bias around the Japanese yen acts as a tailwind for the GBP/JPY cross.

Bulls, however, struggle to capitalize on the move or find acceptance above the 100-day SMA. Despite an upward revision of the UK Q2 GDP print, a bleak economic outlook turns out to be a key factor acting as a headwind for sterling. This, in turn, fails to assist the GBP/JPY cross to capitalize on the move up and attracts some sellers near the 163.30 area.

Furthermore, Japan's finance minister Shunichi Suzuki said on Monday that the government stands ready to intervene in currency markets to prevent deeper losses in the domestic currency. This, along with the prevalent cautious market mood, might continue to offer some support to the safe-haven JPY and cap any meaningful gains for the GBP/JPY cross.

That said, a big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks should keep a lid on the JPY. This, in turn, favours bullish traders and supports prospects for a further appreciating move for the GBP/JPY cross. Hence, any meaningful downfall could still be seen as a buying opportunity and remain limited.

Technical levels to watch