GBP/JPY climbs further beyond mid-181.00s, reverses a major part of its weekly losses

• GBP/JPY scales higher for the third straight day and climbs to a multi-day top on Friday.
• Softer domestic data and a positive risk tone weigh on the JPY and lend some support.
• Expectations that the BoE is done hiking rates and intervention fears to cap the upside.

The GBP/JPY cross builds on this week's recovery move from the 178.00 mark, or its lowest level since July 28 and gains some positive traction for the third successive day on Friday. The buying interest picks up pace during the early part of the European session and lifts spot prices to a multi-day peak, around the 181.70 region in the last hour.

The Japanese Yen (JPY) weakens a bit following the release of softer domestic data, which showed that nominal cash earnings for workers matched the previous month's downwardly revised reading and rose 1.1% from the previous year. Another government report revealed that Japan’s household spending – a key indicator of private consumption – declined for the sixth month in a row, by 2.5% in August. This ensures that the Bank of Japan (BoJ) will stick to its dovish stance in the foreseeable future, which, along with a positive tone around the equity markets, undermines the safe-haven JPY and lends some support to the GBP/JPY cross.

The British Pound (GBP), on the other hand, draws some support from subdued US Dollar (USD) demand ahead of the release of the key US monthly employment details, or the NFP report, due later during the early North American session. This is seen as another factor pushing the GBP/JPY cross higher. The intraday move up could further be attributed to some technical buying above the 200-hour Simple Moving Average (SMA), which might have already set the stage for a further appreciating move. That said, expectations that the Bank of England (BoE) will leave interest rates unchanged at its next meeting in November, might cap the GBP.

Furthermore, speculations that Japanese authorities will intervene in the FX market to combat a sustained depreciation in the JPY might contribute to keeping a lid on the GBP/JPY cross. In fact, Japan's Finance Minister Shunichi Suzuki reiterated this week that currency rates must move stably reflecting fundamentals and that the government was ready to take necessary action against excess volatility, without ruling out any options. Nevertheless, spot prices have now recovered a major part of the weekly losses, though the fundamental backdrop warrants some caution for bullish traders.

Technical levels to watch