- GBP/JPY prints four-day uptrend following the recent bounce.
- UK-Aussie trade deal, bullish BOE battle covid woes in Japan and Britain.
- Risk tone remains sluggish ahead of UK CPI, US FOMC minutes.
- Japan Industrial Production for March can offer immediate direction.
GBP/JPY picks up bids to 154.60, up 0.05%, amid the initial hour of Tokyo trading on Wednesday. The cross-currency pair recently benefited from the UK’s trade deal with Australia and the Bank of England (BOE) policymakers’ bullish bias. However, the risk-off mood ahead of the key UK Consumer Price Index (CPI) for April tests the bulls of late.
British PM Boris Johnson backs duty-free trade deal with Australia in a stellar move of the first key trade agreement post-Brexit, despite farmers’ dissent at home. Brexit has been exerting downside risk on the cable as the UK jostles with the European Union (EU) over multiple issues ranging from Northern Ireland to fisheries. Recently, UK’s Chief Brexit negotiator warned the EU, per Independent, “The post-Brexit trading crisis in Northern Ireland (NI) must be solved before the “turbulence” of traditional Protestant celebrations in July.” However, the British diplomat stepped back afterward signaling the move as a push and not a direct warning.
Also positive for the GBP/JPY could be the BOE policymakers’ optimism amid fewer challenges concerning inflation, for now. In their latest testimony the members from BOE, including Governor Andrew Bailey, defended current monetary policy while cheering upbeat economic recovery.
Alternatively, challenges to the UK’s unlock plans, mainly due to the Indian variant of covid, joins Japan’s virus woes to weigh on the quote.
Amid these plays, S&P 500 Futures print mild losses but Japan’s Nikkei 225 is down 1.2% by the press time.
The UK CPI for April, expected 1.4% versus 0.7% forecast, will be the key event of the day even as Britain witnesses comparatively fewer reflation woes than the US.
Technical analysis
Although multiple tops marked in 2018 restrict GBP/JPY upside towards the 155.00 threshold, sellers are less likely to enter until the quote stays beyond April top of 153.41.
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