GBP/JPY sits at midpoint of this week’s 149.00-151.00 range as traders mull themes of BoE, pandemic

• GBP/JPY was subdued on Thursday, trading roughly at the midpoint of this week’s 149.00-151.00ish range.
• UK GDP data on Friday will be watched, but the main themes driving the pair remains Omicron and the BoE.

GBP/JPY saw subdued trading conditions on Thursday, in fitting with the broadly subdued conditions also witness over the past two days. The pair has spent the session trading either side of the 150.00 level and is currently changing hands close to 149.90, down about 0.1% on the day. That puts it roughly at the midpoint of this week’s 149.00-151.00ish range.

Looking ahead to Friday’s session, UK GDP data for October is set for release at 0700GMT. The data will be closely watched by traders, but the main interest they will have is in trying to guage how the BoE will interpret the data. Most likely, even if growth did start off Q4 stronger than expected (markets expected 0.4% MoM growth), this wouldn’t factor into the BoE’s thinking much with regards to whether or not it is going to hike rates at next week’s meeting.

Indeed, the emergence of Omicron, which triggered GBP/JPY’s initial tumble from close to 154.00 on November 26, has seen BoE members adopt a more dovish tone. Most economists now expect the bank to hold interest rates steady in December and kick the can down to the road until February (regarding rate hikes) as they await further information about the Omicron variant and observe the UK government response. The fact that the UK government announced Covid-19 “Plan B” on Wednesday, where people will be ordered to work from home (where possible), amongst other restrictions on hospitality sectors/public spaces, will give the BoE further cause for caution.

BoE dovishness in face of Omicron and the winding down of expectations for a rate hike at next week’s meeting is likely one key reason why GBP/JPY has been unable to sustain any reasonable attempt at a recovery back towards its pre-Omicron levels. At present, the pair is about 2.4% below pre-Omicron news levels. By comparison, USD/JPY (which is not weighed by a dovish central bank, rather, the Fed has since turned more hawkish) is down about 1.6%.

For now, GBP/JPY is being held up by decent support in the 148.50-149.00 area. Should Omicron/pandemic woes worsen in the coming weeks as cases in places like the UK and US spike and hospitalisation start to rise, this could exacerbate the yen’s safe-haven bid. If that further deters BoE hawkishness and further suppresses UK/Japan yield differentials as a result, a good medium-term target for GBP/JPY could the next area of key support around 145.00.