GBP/JPY trades with mild positive bias around mid-184.00s, lacks bullish conviction

• GBP/JPY seesaws between tepid gains/minor losses through the early European session.
• Bets for a lower BoE peak rate undermine the GBP and act as a headwind for the cross.
• Recession risks benefit the JPY’s relative safe-haven status and contribute to capping.

The GBP/JPY cross struggles to capitalize on its modest intraday recovery gains on Thursday, though manages to hold in positive territory through the first half of the European session. Spot prices currently trade around mid-184.00s and remain well within the striking distance of a one-and-half-week low touched on Wednesday.

The British Pound (GBP) continues with its relative underperformance in the wake of expectations for a lower Bank of England (BoE) peak rate, which, in turn, acts as a headwind for the GBP/JPY cross. In fact, market participants now seem convinced that the UK central bank will pause its rate-hiking cycle after one more 25 bps lift-off in September. The bets were lifted by the disappointing UK PMI prints on Wednesday, which revived fears about an impending recession in the UK.

Adding to this, worries about a deeper economic downturn continue to lend some support to the safe-haven Japanese Yen (JPY) and further contribute to capping the upside for the GBP/JPY cross. That said, the optimism over US Secretary of Commerce Gina Raimondo's visit to China on August 27-30 might hold back traders from placing aggressive bullish bets around the JPY, amid receding fears of an imminent intervention by authorities, and should help limit the downside for the cross.

In fact, Atsushi Takeuchi, who was head of the Bank of Japan's (BoJ) foreign exchange division in 2010-2012, said this week that Japan will forgo intervening in the market unless the Yen plunges past 150 against the US Dollar (USD). Apart from this, a more dovish stance adopted by the BoJ warrants some caution before placing aggressive bearish bets around the GBP/JPY cross and positioning for an extension of this week's retracement slide from the highest level since November 2015.

There isn't any relevant market-moving economic data due for release from the UK on Thursday, leaving spot prices at the mercy of the broader risk sentiment and safe-haven demand. The focus, however, will be on the Tokyo Core CPI on Friday and the crucial Jackson Hole Symposium, where comments by central banks should infuse significant volatility in the markets and provide some meaningful impetus to the GBP/JPY cross.

Technical levels to watch