GBP/JPY consolidates near 157.00 mark, just below multi-year tops

• GBP/JPY attracted some dip-buying on Monday and shot back closer to multi-year tops.
• Positive Brexit headlines, hawkish BoE underpinned the GBP and remained supportive.
• A softer risk tone benefitted the safe-haven JPY and capped the upside for the cross.

The GBP/JPY cross shot to fresh daily tops, around the 157.35 region during the early European session, albeit lacked any follow-through buying. The cross was last seen hovering around the 157.00 mark, nearly unchanged for the day.

The cross attracted some dip-buying near the 156.60 region on the first day of a new trading week and inched back closer to over five-year tops touched on Friday. The GBP/JPY cross bounced over 50 pips from the daily swing lows, though the uptick lacked bullish conviction.

The British pound continued drawing some support from the fact that the EU agreed to scrap most checks on goods and medicines arriving into Northern Ireland from the rest of the UK. This, along with rising bets for a BoE rate hike this year, acted as a tailwind for the sterling.

Adding to the recent hawkish rhetoric, the BoE Governor Andrew Bailey warned that rising energy prices means inflation will last longer and that monetary policy cannot solve supply-side problems. He added that the BoE will have to act if we see a risk to medium-term inflation expectations.

That said, fears that the UK will reject the EU's new proposal for the Northern Ireland protocol held traders from placing fresh bullish bets around the GBP. Moreover, a softer risk tone benefitted the Japanese yen's safe-haven status and collaborated to cap the upside for the GBP/JPY cross.

Against the backdrop of fears about a faster-than-expected rise in inflation, signs of a global economic slowdown have been fueling concerns about the return of stagflation. Adding to this, disappointing Chinese GDP print tempered investors' appetite for perceived riskier assets.

In the absence of any major market-moving economic releases from the UK, traders seemed reluctant amid extremely overbought RSI on the daily chart. This further makes it prudent to wait for some near-term consolidation or a modest pullback before the GBP/JPY cross resumes its bullish trend.

Technical levels to watch