- GBP/JPY gained strong positive traction for the fifth straight session on Wednesday.
- Encouraging Brexit headlines, hawkish BoE signals acted as a tailwind for the sterling.
- The recent widening of the UK-Japanese yield spread remained supportive of the move.
The GBP/JPY cross shot to the highest level since June 24 during the first half of the European session, with bulls now eyeing a move to reclaim the key 155.00 psychological mark.
The cross prolonged its recent strong bullish momentum from the 149.25-20 area, or monthly lows and continued scaling higher for the fifth consecutive session on Wednesday. This also marked the eighth day of a positive move in the previous nine and was supported by the emergence of fresh buying around the British pound.
Reports that the European Union’s new proposals for the Northern Ireland Protocol will involve reduced checks on goods and medicines boosted the sterling. This comes amid the recent widening of the UK-Japanese 10-year yield differential, which weighed on the Japanese yen and contributed to the GBP/JPY pair’s ongoing move up.
Over the weekend, the Bank of England (BoE) officials, including Governor Andrew Bailey, signalled an imminent interest rate hike later this year. The money market seems to have fully priced in a 25bps BoE rate hike in December and pushed the UK 10-year gilt yield to the highest level since May 2019, at 1.222% on Monday.
Conversely, the yield on the 10-year Japanese government bond remained near zero due to the Bank of Japan’s yield curve control policy. Apart from this, a modest uptick in the equity markets undermined the safe-haven JPY and supports prospects for additional gains, though overbought conditions warrant some caution.
Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before placing fresh bullish bets around the GBP/JPY cross and positioning for any further appreciating move.