GBP/JPY struggles near mid-160.00s, over one-week low despite mostly upbeat UK jobs data

• GBP/JPY drops to over a one-week low on Tuesday, though lacks follow-through selling.
• Mostly upbeat UK employment details do little to impress bulls or lend any support.
• The BoJ’s dovish stance continues to weigh on the JPY and helps limit any further slide.

The GBP/JPY cross attracts fresh selling following an early uptick to the 161.65 region and drops to over a one-week low during the early European session on Tuesday. Spot prices, however, manage to recover a few pips and now seem to have stabilized around the mid-160.00s.

The British pound continues with its struggle to gain any meaningful traction amid worries about the UK government's fiscal plans and fails to gain any respite from mostly upbeat UK employment details. The Office for National Statistics (ONS) reported this Tuesday that the unemployment rate in the UK dropped to 3.5% during the three months to August from 3.6% previous. Adding to this, average weekly earnings came in better than estimates and largely offsets a rise in the number of people claiming jobless benefits, though does little to impress bulls.

The Japanese yen, on the other hand, draws some support after Japan's Finance Minister Shunichi Suzuki reiterated that the government stands ready to intervene and respond appropriately to excess FX moves. Apart from this, the prevalent risk-off environment benefits the JPY's relative safe-haven status against its British counterpart and exerts some pressure on the GBP/JPY cross. That said, a more dovish stance adopted by the Bank of Japan keeps a lid on any further gains for the domestic currency and acts as a tailwind for the GBP/JPY cross, for the time being.

In fact, Japan's Prime Minister Fumio Kishida said that the BoJ needs to stick to its ultra-lose policy until wages rise. This marks a big divergence in comparison to other major central banks, which might continue to weigh on the JPY and supports prospects for the emergence of some dip-buying around the GBP/JPY cross. Hence, it will be prudent to wait for strong follow-through selling before traders start positioning for an extension of the pair's recent pullback from a multi-week high, around the 165.70 region touched last Wednesday.

Technical levels to watch