GBP/JPY falls back to 50-day MA ahead of the BOE rate hike

• GBP/JPY has fallen back to 50-day moving average of 146.35 as Sino-US trade tensions have likely put a bid under the Japanese Yen.
• The Bank of England (BOE) is seen raising rates by 25 basis points, but the move has been priced-in by the markets.
• The GBP/JPY could suffer deeper losses if the BOE delivers a dovish hike and risk aversion worsens.

GBP/JPY is under pressure in Asia as the anti-risk JPY is solidly bid amid trade tensions.

The US President Trump proposed increasing the tariffs on Chinese imports to 25 percent from the initially proposed 10 percent duty. China is expected to retaliate in kind if the Trump administration goes ahead with a hike in tariffs, leading to further escalation of the trade war.

As a result, the risk sentiment soured during the overnight trade, pushing the Dow Jones Industrial Average down by 0.32 percent.

Consequently, the JPY is scoring gains against most majors. At press time, the GBP/JPY is trading at 146.40, having clocked a low of 146.35 (50-day MA) a few minutes ago.

The UK-Japan interest rate differential is set to widen further as the Bank of England is expected to raise rates by 25 basis points today. However, it will most likely be a dovish hike, meaning the central bank may pour cold water over the talk of rate hikes in the near future, courtesy of lack of Brexit progress and rising odds of hard Brexit.

GBP/JPY Technical Levels

Resistance: 146.66 (daily high), 147.15 (previous day’s high), 147.76 (61.8% Fib R of July 16 high – July 30 low)

Support: 146.35 (50-day MA), 145.46 (July 24 low), 145.26 (July 30 low).