GBP/JPY pares intraday gains, struggles to find acceptance above 165.00 mark

• GBP/JPY shot back above the 165.00 mark amid the offered tone surrounding the safe-haven JPY.
• Brexit woes, expectations for a less hawkish BoE to hold back bulls from placing aggressive bets.
• Traders eye the final UK Services PMI for some impetus ahead of BoE’s Financial Stability Report.

The GBP/JPY cross gained traction for the second successive day on Tuesday and climbed to a two-day high during the early European session. The momentum pushed spot prices further beyond the 165.00 mark and was sponsored by the prevalent selling bias surrounding the Japanese yen, though lacked follow-through.

Despite growing worries about a global recession, reports that US president Joe Biden was leaning toward a decision on easing tariffs on goods from China offered a brief respite to nervous investors. This was evident from a generally positive tone around the equity markets, which undermined demand for traditional safe-haven assets. Apart from this, a big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks further drove flows away from the JPY. The combination of factors acted as a tailwind for the GBP/JPY cross, though domestic issues could act as a headwind for the British pound and keep a lid on any meaningful gains.

Investors seem concerned that the UK government's controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union amid the ongoing cost of living crisis. Apart from this, expectations that the Bank of England would adopt a gradual approach towards raising interest rates amid growing recession fears might hold back traders from placing bullish bets around sterling. The fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move for the GBP/JPY. Market participants now look forward to the final UK Services PMI for some impetus ahead of the BoE's Financial Stability Report.

This, along with BoE Governor Andrew Bailey's press conference about the report, will influence the GBP price dynamics. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities around the GBP/JPY cross.

Technical levels to watch