GBP/JPY slides to fresh daily low, eyes 161.00 mark on softer-than-expected UK CPI

• GBP/JPY meets with a fresh supply on Wednesday and erodes a part of the overnight gains.
• The softer UK CPI print eases pressure on the BoE to tighten further and weighs on the GBP.
• The risk-off mood underpins the safe-haven JPY and also contributes to the intraday decline.

The GBP/JPY cross comes under some selling pressure on Wednesday and snaps a two-day winning streak to a fresh YTD peak, around the 162.15-162.20 region touched the previous day. The cross remains depressed through the early European session and hits a fresh daily low, around the 161.15 area, following the release of the UK consumer inflation figures.

In fact, the UK Office for National Statistics reported that the headline CPI declined by 0.6% in January, more than the 0.4% fall anticipated. Adding to this, the yearly rate decelerated from 10.5% in December to 10.1% during the reported month, again missing estimates for a reading of 10.3%. Moreover, Core CPI, which excludes seasonally volatile products such as food and energy, came in at 5.8% YoY as compared to the 6.3% previous and 6.2% expected.

The data points to signs of easing inflationary pressure and could allow the Bank of England to slow the pace of its policy-tightening, which, in turn, weighs on the British Pound. The Japanese Yen (JPY), on the other hand, is underpinned by speculations that Kazuo Ueda, the Bank of Japan (BoJ) governor candidate, will dismantle the yield curve control. This, along with the risk-off mood, benefits the safe-haven JPY and exerts pressure on the GBP/JPY cross.

The aforementioned fundamental backdrop favours bearish traders and suggests that the recent move-up witnessed over the past two weeks or so has run out of steam. That said, it will still be prudent to wait for some follow-through selling below the 161.00 mark before confirming the negative outlook and positioning for any further intraday depreciating move.

Technical levels to watch