GBP/JPY drops below 161.00 as Brexit fears loom amid pre BoE indecision

• GBP/JPY takes offers to refresh intraday low, prints mild losses.
• DUP shows readiness to reject UK PM Sunak’s Brexit deal on Wednesday’s key voting.
• Market remains unclear as banking crisis tests BoE hawks.

GBP/JPY bears keep the reins around the intraday low of 160.76, down 0.18% on a day heading into Tuesday’s London open, as anxiety surrounding the Bank of England’s (BoE) next move joins Brexit woes. It’s worth noting that holiday in Japan restrict the cross-currency pair’s latest moves amid mixed feelings about the banking crisis.

Late on Monday, BBC News quotes Democratic Unionist Party (DUP) Leader Sir Jeffrey Donaldson as saying that the agreement was not sufficient to deal with concerns that his party had raised about post-Brexit trade rules for Northern Ireland. “The DUP has confirmed that it will oppose the deal - known as the Windsor Framework - when MPs are given a vote on part of it on Wednesday,” adds BBC News.

On the other hand, The Telegraph conveys multiple analysts’ estimations while saying, “The Bank of England (BoE) will be forced to abandon an interest rate rise this week following turmoil in global financial markets.” The forecasts become too important ahead of the “Super Thursday” as some on the floor expected a 50 bps rate hike from the “Old Lady”, as the BoE is casually known.

On a broader front, hopes of easing the banking crisis seem to have favored the market sentiment and drowned the US Dollar. UBS’ takeover of the troubled Credit Suisse, by paying 3 billion Swiss francs (£2.6bn), eased the market’s baking fears. On the same line were statements from the US Federal Deposit Insurance Corporation (FDIC) mentioning that the deposits of Signature Bridge Bank will be assumed by a subsidiary of New York Community Bancorporation.

It’s worth noting that the mixed concerns around the banking turmoil challenge the previous risk-on mood and join the mixed concern about the major central banks’ next moves to revive the US Treasury bond yields. That said, the US 10-year and two-year Treasury bond yields bounced off the lowest levels since September 2022 the previous day, mildly bid during the early Asian hours on Tuesday.

Looking ahead, risk catalysts will be important to watch for GBP/JPY traders amid Japan holidays. However, Wednesday’s Brexit voting in the UK’s Parliament and the British inflation data will be crucial for the pair watchers to observe for clear directions. Above all, banking headlines and the BoE updates are all-important to gauge the cross-currency pair’s next move.

Technical analysis

GBP/JPY stays depressed between a downward-sloping resistance line from October 2022 and an ascending support line from January 13, respectively near 162.90 and 158.80.