GBP/JPY extends bounce off monthly low towards 160.50 on firmer yields, UK GDP eyed

• GBP/JPY tracks upbeat yields to reverse from the lowest levels since September 30.
• Upbeat expectations from UK data, bond rout amid recession woes adds strength to recovery.
• Monthly prints of UK statistics, Japan’s intervention will be crucial for short-term directions.
• Disappointment from BOE, UK’s new government keeps bears hopeful.

GBP/JPY picks up bids to refresh intraday high around 160.40 as the yen drops versus major currencies during early Wednesday. In doing so, the cross-currency pair rebounds from a two-week low amid fears of Japan’s intervention.

At home, Japan’s Machinery Orders for August posted their biggest single-month fall in six months while flashing -5.8% MoM print. That said, the yearly figures were also disappointing and lagged behind 12.6% market forecasts, as well as 12.8% prior.

It should be noted that the downbeat Japanese figures joined a survey data suggesting pessimism for the Asian major to propel the GBP/JPY. Reuters mentioned that a monthly poll that tracks the Bank of Japan's (BOJ) closely-watched Tankan quarterly survey, found manufacturers' mood expected to deteriorate again over the coming three months while the service-sector mood was seen rebounding further.

That said, the US 2-year Treasury yields reversed the previous day’s pullback from a two-week top earlier in the day, easing back to 4.30% at the latest. Mildly bid US stock futures and Nikkei 225 could also be linked to the quote’s latest strength.

However, looming market intervention by the Japanese policymakers, as recently signaled by Finance Minister Shunichi Suzuki, per Jiji Press news agency, appear to challenge the GBP/JPY buyers. Also likely to poke the pair could be the latest disappointments from the Bank of England’s (BOE) and cautious mood ahead of the UK’s monthly data dump.

A speech from BOE Governor Andrew Bailey, published late Tuesday, amplified the risk-off mood by citing the Financial Policy Committee’s (FPC) decision to intervene in the financial market after noting market volatility surpassed the bank stress test. On the same line was the BOE’s expansion of the gilt operation to include inflation-linked gilts for the remainder of their intervention (due to finish on 14 October, UK time).

Moving on, the monthly prints of the UK’s Gross Domestic Product (GDP) for August, expected to ease to 0.0% versus 0.2% prior, will join the Industrial Production and Manufacturing Production for the said month to direct immediate GBP/JPY moves. Also important will be the Japanese policymakers’ efforts to tame JPY's weakness.

Overall, the GBP/JPY pair is likely to grind southwards amid comparatively more pessimism in Britain than in Japan.

Technical analysis

GBP/JPY remains bearish as it keeps the previous day’s downside break of the 200-DMA and the 61.8% Fibonacci retracement level, also known as the golden ratio, of the June-September south-run, respectively around 160.70 and 161.15 by the press time.