GBP/JPY recovers back to pre-Omicron levels in 153.50 area, more than 2.5% up from Monday lows

• GBP/JPY recovered back to its pre-Omicron levels on Thursday, surging from around 152.50.
• That marks a more than 2.5% recovery from earlier weekly lows under 150.00.

GBP/JPY impressive turnaround from earlier weekly lows under the psychologically important 150.00 level kicked up a gear on Thursday, with the pair bursting above the key 152.50 balance area early during European trade to advance as high as the 153.50 area. On the day, that translates into gains of about 0.8%, meaning the pair is now up roughly 2.0% on the week and more than 2.5% versus Monday’s lows.

The pickup in volatility is surprising from a seasonal standpoint – typically in the last few weeks of December, volumes and volatility are lower than usual due to the Christmas and New Year’s holidays in Europe, the Americans and elsewhere. But given the backdrop of the Omicron wave currently engulfing the world, the volatility is not so surprising. From that perspective, Thursday’s move high is significant in that it saw GBP/JPY recover back to its pre-Omicron levels (in the mid-153.00s). The stunning recovery of the past three sessions is a reflection of positive Omicron developments including 1) numerous studies showing it to be significantly milder than the delta variant and 2) momentum swinging against the imposition of lockdown measures in the UK.

The fact that (at the moment) it looks unlikely that the UK government will implement tougher restrictions in England reduces economic uncertainty and perhaps allows markets to become a little more confident that the BoE will deliver further successive rate hikes in 2022. In other words, now that Omicron uncertainty in the UK is lessening, it seems as though GBP is finally benefitting from the recent hawkish pivot from the BoE. Recall that, last week, GBP was unable to sustain its post-surprise BoE rate hike gains.