GBP/JPY Halts Near 158.00 on the Back of Lower UK CPI Figure

The GBP/JPY currency pair in the prior day had rallied off the 157.00 support level produced by the 50–hour simple moving average. The British Pound gained 109 pips, or 0.70 percent, against the Japanese Yen as a result.

Earlier in the day, the European majors are broadly weaker, with Sterling reversing some gains following strong but lower-than-expected consumer inflation statistics. The dollar is also weakening, with the 10-year Treasury yield falling marginally, while the yen is attempting to recover. Overall, however, the Kiwi and AUD continue to be the strongest performers.

US futures are indicating a flat open, although buyers may re-enter the market later in the day. The stock market should continue to lead currency movements.

The GBP/JPY then surged to 0.10 percent during the New York session, trading at 157.95 at the time of writing, halting its rising trend at 158.00. Despite central banks’ efforts to normalize monetary policy circumstances, increasing energy costs, and the Federal Reserve’s bond taper announcement, market sentiment remains upbeat.

Following the announcement of the UK CPI, the British pound fell, which revealed that the Consumer Price Index climbed by 3.1 percent yearly in September, less than the 3.2 percent expected by analysts. In addition, the UK Core CPI, which excludes volatile food and energy costs, slowed to 2.9 percent on an annual basis, down from 3.1 percent in August.

Given the lower inflation data, the market continues to expect the Bank of England (BoE) to raise interest rates before the end of the year, giving the GBP/JPY a boost as the pair fell below 158.00. However, if the threat of the Bank of England raising rates remains on investors’ thoughts, the British pound could strengthen further in the coming days.

Technical Analysis of the GBP/JPY Exchange Rate

The upward trend in the GBP/JPY is overextended, as seen by the Relative Strength Index (RSI), a momentum indicator, which is currently at 78 in the overbought range, indicating that the pair may correct before resuming the current trend. The British pound, on the other hand, benefits as long as the daily moving averages (DMAs) remain substantially below the market price.

If there is a fall lower, some dip buyers could emerge around the October 18 low of 156.60, followed by the May 27 high of 156.07. If the GBP/JPY gain continues, a daily close above the psychological level of 157.00 might pave the door for a 158.00 challenge.

Furthermore, investors appear to be confident in a 2021 rate hike by the Bank of England. This was considered as another element that helped the GBP/JPY cross, albeit traders were hesitant to place further bullish bets due to overbought conditions. Nonetheless, the tendency is still in favor of bulls, which suggests that some dip-buying could emerge at lower levels.