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  • GBP/JPY caught aggressive bids on Thursday and broke out of a two-week-old trading range.
  • The prevalent risk-on environment undermined the safe-haven JPY and remained supportive.
  • The upbeat UK economic outlook, BoE Vlieghe’s hawkish comments provided an additional lift.

The GBP/JPY cross added to its strong intraday gains and surged past the key 155.00 psychological mark in the last hour, hitting the highest level since February 2018.

A combination of supporting factors assisted the cross to gain strong positive traction on Thursday and finally break out of a two-week-old trading range. The prevalent risk-on mood, as depicted by a strong rally in the equity markets, undermined the safe-haven Japanese yen. Apart from this, a pickup in demand for the British pound provided an additional boost to the GBP/JPY cross.

The optimistic outlook for the UK economy – bolstered by the impressive pace of vaccinations and the gradual easing of lockdown measures – continued acting as a tailwind for the sterling. In fact, the UK Prime Minister Boris Johnson said that we are seeing an increase in cases of Indian variant, though there was nothing in the current data to delay the plan to end restrictions fully on June 21.

The intraday buying surrounding the GBP/JPY cross picked up pace in reaction to some hawkish comments from the Bank of England policymaker, Gertjan Vlieghe. Speaking at an online event, Vlieghe said that an early rate hike is possible if there is a smooth transition from furlough. Vlieghe added that tightening policy too early would be a much costlier mistake than tightening too late.

Meanwhile, the latest leg of a sudden spike during the early North American session could further be attributed to some technical buying on a sustained move beyond the 155.00 mark. The GBP/JPY cross was last seen trading around the 155.20-25 region, though it remains to be seen if the strong move up marks a fresh bullish breakout or turns out to be a stop-run.

Technical levels to watch