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  • Dovish sounding BoE policy statement prompted some aggressive selling around the sterling.
  • The risk-off mood underpinned the safe-haven JPY and exerted heavy pressure on GBP/JPY.
  • Technical selling below the 135.40 support area paves the way for further near-term weakness.

The British pound weakened across the board in reaction to dovish sounding BoE policy statement and pushed the GBP/JPY cross to near two-month lows, below the key 135.00 psychological mark.

As was expected, the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to keep benchmark interest rates and Asset Purchase Facility unchanged at 0.10% and £745 billion, respectively. However, the dovish shift came from the accompanying monetary policy statement, wherein the UK central bank acknowledged the risk of a longer period of elevated unemployment and uncertain growth outlook.

The statement further revealed that the BoE was briefed on how to implement negative rates effectively, which, in turn, took its toll on the sterling. This comes amid a fresh wave of the global risk-aversion trade, which provided a strong boost to the safe-haven Japanese yen and added to the selling bias surrounding the GBP/JPY cross.

The downward momentum took along some short-term trading stops near the lower end of a one-week-old trading range, around the 135.40 region. Hence, the latest leg of a sudden drop over the past hour or so, to the lowest level since July 20 could further be attributed to some technical selling. Hence, a subsequent fall towards the 134.50-40 congestion zone, en-route the 134.00 mark, now looks a distinct possibility.

Technical levels to watch