GBP/JPY finds bids around 168.50 ahead of UK Employment, BOE policy a key trigger ahead

• GBP/JPY has reversed after dropping marginally below 168.50, following the footprints of the GBP/USD major.
• Higher UK average earnings could be a double-edged sword for the economy.
• The BOE is likely to return to a slower pace hike approach after a 50 bps rate hike announcement this week.

The GBP/JPY pair has witnessed a termination in a corrective move to near 168.50 as investors are shifting their focus toward the United Kingdom Employment data. A recovery in the GBP/USD pair has propelled a rebound in the cross.

The asset is expected to reclaim the immediate resistance of 169.00 led by a recovery in monthly Gross Domestic Product (GDP) data in the UK. The monthly GDP data (October) reported an expansion of 0.5% while the street was expecting a contraction of 0.1%. Meanwhile, Industrial and Manufacturing Production data remained better than anticipation but have contracted on an annual basis for October month.

After solid economic activities data, investors are awaiting the release of the UK Employment data for further guidance. As per the projections, the UK economy is expected to report negative jobless claims numbers. The economic data (Nov) is seen at -13.3K vs. the prior release of 3.3K. This indicates that the demand for labor is extremely higher. While the quarterly Unemployment Rate (October) is seen higher at 3.7% against the former release of 3.6%.

Apart from that, the crucial catalyst is the Average Earnings data. Quarterly Average Earnings excluding Bonus data is seen higher at 5.9% vs. the former release of 5.7%. Increment in earnings for the households will support them in offsetting higher payouts due to mounting inflation but will also propel inflation to escalate further as higher earnings support bumper retail demand. Therefore, it could be a double-edged sword for the economy.

This week, the show-stopper event is the interest rate decision from the Bank of England (BOE), which will be announced on Thursday. Analysts from Danske Bank are expecting a return of the BoE to a slower hiking pace after a 50 bps rate hike announcement. 

On the Tokyo front, Bank of Japan (BOJ) board member Hajime Takata said in an interview with the Nikkei newspaper published on Saturday that Japan's economy is not yet in a phase where the central bank can end yield curve control. He further added that there were some positive signs in corporate capital expenditure and wages, as reported by Reuters.