GBP/JPY sits near multi-year high, above 188.00 mark ahead of UK inflation figures

• GBP/JPY gains positive traction for the fourth straight day and trades near a multi-year peak.
• The BoJ’s dovish stance, along with the risk-on mood, undermines the JPY and offers support.
• Traders now look to the latest UK consumer inflation figures before placing directional bets.

The GBP/JPY cross attracts some dip-buying following an Asian session dip to the 187.65 region and turns positive for the fourth successive day on Wednesday. Spot prices currently trade around the 188.15 area, just a few pips below the highest level since November 2015 touched on Tuesday, as traders now look to the UK consumer inflation figures before placing fresh directional bets.

The headline UK CPI is anticipated to decelerate sharply from the 6.7% YoY rate in September to 4.8% in October. Against the backdrop of looming recession risks, softer-than-anticipated inflation figures will reaffirm bets that the Bank of England (BoE) will soon start cutting interest rates and undermining the British Pound (GBP). The downside for the GBP/JPY cross, however, seems limited in the wake of a more dovish stance adopted by the Bank of Japan (BoJ).

In fact, the Japanese central bank's minor change to its yield curve control (YCC) policy announced earlier this month pointed to a slow move towards exiting the decade-long accommodative monetary policy settings. Furthermore, the lacklustre domestic GDP report released this Wednesday, showing that the economy contracted for the first time in three quarters, should allow the BoJ to delay any policy shift away from its massive monetary easing stance.

Adding to this, the prevalent risk-on environment might continue to undermine the safe-haven Japanese Yen (JPY) and act as a tailwind for the GBP/JPY cross. This, in turn, suggests that the path of least resistance for spot prices is to the upside. Hence, any immediate market reaction to softer UK data is likely to be short-lived. In contrast, a slightly higher-than-expected UK CPI print should pave the way for a further appreciating move for the cross.

Technical levels to watch