GBP/JPY eyes downside to near 167.00 as further BOE rate hike to bolster recession

• GBP/JPY is expected to decline further to near 167.00 on weak UK Employment data.
• Upbeat UK Average Earnings data to propel inflationary pressures ahead.
• Further BOE’s policy tightening will make the recession situation more vulnerable.

The GBP/JPY pair is struggling to hold itself above the cushion of 167.50 in the early Asian session. The cross witnessed a sharp sell-off on Tuesday as investors are hoping that the recession situation in the United Kingdom would get worsen if the Bank of England (BOE) escalate interest rates further. Meanwhile, the GBP/USD pair is displaying more pain amid a recovery in the US Dollar Index.

On Tuesday, the UK Office for National Statistics reported a significant jump in Claimant Count Change data. The initial jobless claims for November surprisingly reported a significant jump by 30.5K while the market participants were expecting a decline of 13.3K. Apart from that, Average Earnings soared to 6.1%, which has bolstered inflation expectations as higher households' earnings will result in robust retail demand.

The UK economy is already facing a recession situation and it is expected to get vulnerable further as the Bank of England (BOE) is set to hike its interest rates amid an absence of evidence that could convey a slowdown in inflationary pressures ahead.

On the Tokyo front, investors are expecting more stimulus packages from the Japanese administration in order to spurt the extent of economic activities. The Bank of Japan (BOJ) is already favoring the policy easing approach to accelerate inflation and is expected to continue further till inflation reaches to 2% target confidently.

GBP/JPY technical outlook

On an hourly scale, the GBP/JPY pair has delivered a breakdown of the upward-sloping trendline plotted from December 2 low at 164.05. A bear cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 168.06, indicates more weakness ahead. The 200-EMA around 167.27 is still working as a support to the Pound Sterling.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which signifies that the downside momentum is active.