GBP/JPY struggles to extend two-day uptrend below 162.00 as UK inflation, Brexit vote loom

• GBP/JPY remains sidelined after rising the last two consecutive days.
• Recovery in yields favors bulls ahead of the key day comprising multiple data/events.
• Japan’s return from holiday, UK House of Commons vote on Brexit bill and British CPI for February in focus.

GBP/JPY remains mildly offered near 161.70 as it pares the recent gains ahead of the key day, snapping two-day uptrend at the latest.

In doing so, the cross-currency pair justifies the market’s fears amid negative reception of UK PM Rishi Sunak’s Brexit deal among some of the fellow Conservatives and the European Research Group (ERG). On the same line could be the looming fears of the Bank of England’s (BoE) likely dovish hike as the banking crisis challenges the “Old Lady”, as the UK central bank is informally known.

It should be noted that the recovery in the US Treasury bond yields and Tuesday’s holiday in Japanese markets allowed the quote to remain firmer of late. That said, the US 10-year and two-year Treasury bond yields stretched late Monday’s bounce off the lowest levels since September 2022 to 3.60% and 4.18% respectively.

While tracing the latest rebound in the bond coupons, the comments from the US policymakers, as well as actions, to tame the fears emanating from the latest banking fallouts gain major attention. Among them, US Treasury Secretary Janet Yellen’s comments gained major attention as she said, "Treasury, Fed, FDIC actions reduced risk of further bank failures that would have imposed losses on deposit insurance fund."  Earlier on Tuesday, Bloomberg shared the news stating that the “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.”

It should be noted that the talks of the US authorities discussing ways to surpass Congress to defend the banks also seem to have underpinned the yields and the GBP/JPY rebound.

However, the cautious mood ahead of today’s UK’s Consumer Price Index (CPI) data for February, expected 9.8% YoY versus 10.1% prior, prod the bulls. On the same line is the anxiety surroudning Brexit voting in the UK’s House of Commons amid recent rejections from the European Research Group (ERG) and the Democratic Unionist party (DUP).

Technical analysis

GBP/JPY grinds higher between a one-month-old descending resistance line and an ascending support line from mid-January, respectively near 163.30 and 160.75 in that order.