GBP/JPY sticks to UK jobs data-led gains, around 153.75-80 region

• GBP/JPY gained traction for the third successive day and shot to over one-week highs.
• Upbeat UK employment details assured a BoE rate hike move and remained supportive.
• The cautious mood underpinned the safe-haven JPY and capped gains amid Brexit woes.

The GBP/JPY cross held on to its strong gains through the first half of the European session, albeit has retreated a few pips from the one-and-half-week top touched earlier this Tuesday.

The cross built on last week's recovery move from over one-month lows and gained some follow-through traction for the third successive day amid a strong pickup in demand for the British pound. The overnight hawkish comments by the Bank of England (BOE) Governor Andrew Bailey was seen as a key factor that acted as a tailwind for the sterling and the GBP/JPY cross.

Speaking before the UK Parliament Treasury Select Committee, Bailey said that he was very uneasy about the inflation outlook and that all future policy meetings are now in play for a rate rise. The intraday buying interest picked up pace after the latest UK jobs report showed that the unemployment rate declined more than expected, to 4.3% in September from 4.5% in August.

The number of payrolled employees rose by 160,000 in September and October, suggesting that the end of the government’s furlough scheme did not lead to a deterioration in the labour market. The data supported the case for an immediate 15bps rate hike in December by the Bank of England, which, in turn, was seen as a key factor that provided a strong lift to the GBP/JPY cross.

Meanwhile, worries about a faster than anticipated rise in inflationary pressures continued weighing on investors' sentiment. This was evident from the prevalent cautious mood around the equity markets, which benefitted the Japanese yens' relative safe-haven status. Apart from this, the impasse over the Northern Ireland Protocol capped gains for the GBP/JPY cross, at least for the time being.

Technical levels to watch