GBP/JPY drops back to 161.00 after softer-than-expected UK CPI

• GBP/JPY prints a 50-pip fall on downbeat UK inflation data.
• Risk-off mood, Brexit uncertainty also weighs on the pair prices.
• Japan Q1 2022 GDP came in firmer, yields cheer hawkish Fedspeak.
• Headlines concerning Brexit, Russia and covid will be important for near-term directions.

GBP/JPY portrays a 50-pip downside reaction to the UK inflation data heading into the London open on Wednesday. The cross-currency pair presently hovers around 161.00, after declining to 160.91, as traders digest the Consumer Price Index (CPI) figures for April.

The UK’s headline CPI refreshed its all-time high to 9.0% YoY but failed to match the 9.1% market consensus. Further, the Core CPI matched the 6.2% YoY forecast, compared to 5.7% prior. It should be observed that a downward revision in the Producer Price Index (PPI) and upbeat prints of the Retail Price Index also confuse the bulls. As a result, the GBP/JPY prices consolidate the biggest daily gains in two months.

Read: Breaking: UK annualized inflation jumps 9% in April vs. 9.1% expected

It’s worth noting that the fresh risk-aversion wave and comments from the British diplomats are extra catalysts to weigh on the GBP/JPY prices.

A fresh rise in China’s covid numbers and Shanghai’s refrain from total unlock joins while the European Union (EU) and the US preparations for more hardships for Russia, due to Moscow’s invasion of Ukraine, weigh on the market sentiment.

While portraying the risk-off mood, the US 10-year Treasury yields seesaw around 2.98% whereas the S&P 500 Futures decline 0.20% intraday even as Wall Street posted heavy gains.

On a different page, UK Foreign Minister Liz Truss said “we're facing a very difficult economic situation” whereas British Finance Minister Rishi Sunak tries to placate inflation fears while blaming the energy price cap rise in April.

Elsewhere, the European Union’s (EU) readiness to offer an olive branch to the UK, to stop the British administration from repealing the Northern Ireland Protocol (NIP), seems to have acted as a positive catalyst of late. However, Britain remains determined to alter part of the NIP, and the bloc eyes hard steps on trade deals if the UK does that, which in turn keeps the Brexit risk high.

Earlier in the day, Japan’s preliminary readings of Q1 2022 GDP rose past -0.4% expectations to -0.2% QoQ whereas the Annualized GDP improved to -1.0% versus -1.8% forecasted.

Moving on, risk catalysts are the key for GBP/JPY moves amid a light calendar for Wednesday, as well as likely Brexit headlines and European reaction to the latest downbeat sentiment.

Technical analysis

Failures to cross the 21-DMA, around 161.80 by the press time, triggered the GBP/JPY pair’s latest declines targeting the 50-DMA level surrounding 160.90. However, bears remain cautious until the quote stays above the previous resistance line from April, near 159.65 at the latest.