GBP/JPY clings to upbeat UK jobs data-led gains near one-week high, around mid-161.00s

• GBP/JPY gained strong positive traction for the third straight day and shot to a one-week high.
• The British pound witnessed aggressive short-covering in reaction to the upbeat UK jobs report.
• The risk-on impulse undermined the safe-haven JPY and remained supportive of the move up.

The GBP/JPY cross maintained its strong bid tone through the mid-European session and was last seen trading around the mid-161.00s, just a few pips below a one-week high.

The cross built on last week's goodish rebound from the vicinity of the very important 200-day SMA and scaled higher for the third successive day on Tuesday. The British pound strengthened across the board after the latest UK jobs report showed that the ILO Unemployment Rate edged down to 3.7% in three months to March from 3.8% prior.

Additional details revealed that the number of people claiming unemployment-related benefits dropped by 56.9K in April. The data pointed to tight labour market conditions in the UK and lifted bets for an additional interest rate hike by the Bank of England at next month's meeting. This, in turn, prompted aggressive short-covering around the GBP crosses.

On the other hand, the risk-on impulse - as depicted by a strong rally in the global equity markets - undermined demand for the safe-haven Japanese yen. Apart from this, a more dovish stance adopted by the Bank of Japan further weighed on the domestic currency, which provide an additional boost and contributed to the GBP/JPY pair's strong move up.

It, however, remains to be seen if bulls are able to retain their dominant position amid the UK-EU dispute over the Northern Ireland protocol. Nevertheless, the GBP/JPY cross has now recovered nearly 50% of its recent sharp corrective pullback from a five-year high. As investors digest the upbeat UK macro data, the focus shifts back to Brexit developments.

Technical levels to watch