GBP/JPY Rebounds Following Plunge to 10-Week Low Amid Expectant Market Mood

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The GBP/JPY pair trades softly in the London session on Thursday after a sharp yesterday off a 10-week low. The recent weakness on the pair is blamed on the prevailing apprehensive investor sentiment ahead of key economic data events, along with a lack of market-moving catalysts.

A Russian negotiator recently revealed possible rounds of diplomatic discussions today. Interfax corroborated the peace talk sentiments, noting: “A potential ceasefire will be discussed in upcoming talks with the Ukrainian delegation.”

Meanwhile, mild investor optimism over the widely-anticipated peace talks between Russia and Ukraine contended the growing hopes of a faster interest rate-hike campaign by the US Fed.

GBP/JPY to Suffer Potential Bearish Resumption on US Fed Rate Hike

Notably, a potential announcement of an interest hike by 50 basis points in the Fed meeting in March challenges the prevailing market optimism, according to CME’s FedWatch Tool, which could refresh the bearish momentum for the GBP/JPY pair.

Also, US inflation expectations rose to a 15-week high according to the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. At the same time, rating agencies like Moody’s and Fitch have slashed Russia’s economic rating, which contributed to the prevailing offbeat sentiment.

In the UK, the Daily Express cited some data highlighting a jump in the EU nationals in the UK off-setting Brexit criticisms. Additionally, the Guardian reported that UK Prime Minister Boris Johnson, in a recent discussion with Ukrainian President Volodymyr Zelensky, asserted that he would publish a “full list of all those associated with the Putin regime.”

On the issue of Ukraine, Bank of England (BoE) policymakers, including Silvana Tenreyro and Jon Cunliffe, have warned of the possible economic risks coming from Russia’s invasion of Ukraine.

On the other end of the sphere, Bank of Japan (BoJ) monetary policy board member Junko Nagaya noted in a statement earlier today that “Japan’s economic outlook remains highly uncertain from January onward.”