GBPJPY rebounds from monthly low but buyers stay cautious below 166.00 ahead of UK GDP

• GBPJPY struggles to extend the daily gains amid sluggish yields, pre-data anxiety.
• Optimism surrounding Brexit, BOE’s next move keeps buyers hopeful but fears of Japan’s meddling test upside.
• Yields dropped after US inflation data amplified risk-on mood.
• Fears that UK Q3 GDP will amplify recession woes weigh on the prices.

GBPJPY prints mild gains around 165.80 while snapping a three-day downtrend at the lowest levels in a month. In doing so, the cross-currency pair struggles to cheer the Japanese Yen’s (JPY) weakness amid cautious optimism in the UK. The reason could be linked to the bank holiday in the US and anxiety ahead of the UK’s preliminary Gross Domestic Product (GDP) figures for the third quarter (Q3) of 2022.

Firmer equities in the Asia-Pacific region join the hopes of Japan’s meddling to defend the JPY to exert downside pressure on the Yen. Also likely to have favored the GBPJPY price could be the mixed readings of Japan’s Producer Price Index (PPI) for October, stronger-than-expected on YoY but matching forecasts on MoM.

Talking about the risks, an eight-month low print of the US Consumer Price Index (CPI) allowed the US Federal Reserve (Fed) policymakers to back easy rate hikes and drown the US Dollar, which in turn helped the market sentiment to bolster. Amid these plays, Asian stocks rise but the S&P 500 Futures struggles for clear directions around a two-month high.

It should be noted that the US 10-year Treasury yields remain inactive around the monthly low near 3.81%, flashed on Thursday, after registering the heaviest slump since early December 2021. Also challenging the GBPJPY buyers, other than the sluggish yields, are fears emanating from China’s covid conditions and anxiety ahead of Monday’s meeting between US President Joe Bide and his Chinese counterpart Xi Jinping.

At home, UK PM Rishi Sunak’s optimism to solve the Brexit issue appears to defend the GBPJPY buyers of late. “British Prime Minister Rishi Sunak said on Thursday he was pleased with the progress the government was making on resolving a long-running post-Brexit trade row with the European Union over Northern Ireland,” reported Reuters.

Furthermore, headlines from the Bank of England (BOE), suggesting the British central bank’s plan to sell gilts, also favor the pair buyers. “The Bank of England said on Thursday that from Nov. 29 it would start to sell back to the market some of the 19 billion pounds ($22 billion) of long-dated and index-linked gilts which it bought last month to quell market turmoil,” said Reuters.

Looking forward, the UK Q3 GDP is expected to print -0.5% QoQ figure versus 0.2% prior and may recall the pair bears. However, fears of a recession are already priced-in and hence a surprise positive could have a welcome reaction.

Also read: UK GDP Preview: Barrelling toward recession. Pound Sterling set to fall?

Technical analysis

Although a downside break of the one-month-old ascending trend line, around 166.75 by the press time, keeps sellers hopeful, the 100-day EMA challenges the bears around 164.25.