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  • GBP/JPY edged lower on Tuesday and eroded a part of the overnight strong rally to one-month tops.
  • Reviving safe-haven demand benefitted the JPY and was seen exerting some pressure on the cross.
  • Brexit optimism, mostly upbeat UK employment details underpinned the GBP and helped limit the fall.

The GBP/JPY cross refreshed daily tops in reaction to mostly upbeat UK employment detail, albeit quickly retreated few pips thereafter. The cross was last seen trading with modest losses, around the 138.35 region, just below one-month tops set in the previous session.

The cross failed to capitalize on the overnight strong rally of over 300 pips and witnessed some selling during the first half of the trading action on Tuesday. The pullback was exclusively sponsored by reviving demand for the safe-haven Japanese yen, though the latest Brexit optimism helped limit any deeper losses for the GBP/JPY cross.

Market euphoria over a promising development in late-stage COVID-19 vaccine trials faded rather quickly amid scepticism about the efficacy and the length of immunity provided. This, in turn, drove investors back towards traditional safe-haven assets, including the Japanese yen, and exerted some pressure on the GBP/JPY cross.

However, the downside remains cushioned amid hopes for a last-minute Brexit deal, especially after reports indicated that the UK was open to a sensible compromise on fishing. Adding to this, the EU’s chief Brexit negotiator Michel Barnier said they are redoubling their efforts to reach an agreement on the future EU-UK partnership.

The British pound was further supported by mostly upbeat UK monthly jobs report, which showed that the number of people claiming jobless benefits dropped by 29.8K in September. The reading was well below consensus estimates pointing to an increase of 36K and largely offset the expected rise in the unemployment rate to 4.8% from 4.5% previous.

It will now be interesting to see if the GBP/JPY cross is able to gain any meaningful traction or continues with its subdued/range-bound price action as investors await Brexit updates before placing fresh directional bets.

Technical levels to watch