GBP/JPY sellers poke 163.00 on UK political turmoil, weak yields ahead of BOE’s Bailey

  • GBP/JPY extended the return at the beginning of the week amid risk aversion.
  • UK political leaders have stepped up for the Presidential seat after the departure of Boris Johnson.
  • Treasury yields remain pressured, illustrating fears of a recession as inflation expectations rise.
  • The second round of BOE Governor Bailey, risk catalysts will be important to watch for fresh impulse.

GBP/JPY is holding lower ground near the intraday bottom of 162.90 towards the London open on Tuesday. In doing so, the cross-currency pair carries the burden of the risk-aversion wave and the UK political crisis, not to forget the concerns surrounding the slowdown in the British economy.

That said, the U.S. Treasury is producing flash recession fears as the yield curves of 10-year and 2-year Treasury bonds remain upside down, in favor of short-term maturity. Behind the move could be record U.S. inflation expectations, according to a NY Fed survey of consumer inflation expectations a year earlier. Moreover, fears of China’s nationwide covid lockdown, following new activity restrictions in Henan Province’s Wugang, are also putting downside pressure on market sentiment and on GBP/JPY prices.

At home, many key British diplomats from former Chancellor Rishi Sunak to Foreign Secretary Liz Truss, and also not to forget current UK Finance Minister Nadhim Zahawi, are in the race to become British President after break Boris Johnson. While Brexit was the main aspect to favor the candidacy, the tax cuts were heard as promising to win favor.

Elsewhere, British consumers cut spending for the third consecutive month and sales volumes have fallen the most since they were hit by the COVID-19 pandemic as rising inflation stifled the economy, a survey in industry on Tuesday per Reuters.

It’s worth mentioning that Bank of England (BOE) Governor Andrew Bailey said, per Reuters, “The UK is facing a massive real income shock.” The BOE Boss is ready for the second round of testimonials on Tuesday and could push the GBP/JPY movements.

However, the BOE’s hawkish bias contrasts with the Bank of Japan’s (BOJ) easy money policies to indicate central bank diversification and keep consumer pairs hopeful. However, political fears and Brexit in the UK triggered a short-term pullback.

Technical analysis

GBP/JPY is reversing from a three-week-old resistance line, at 163.60 at the time of the hit, which in turn leads to the 21-DMA level around 164.50 to restrict the short-term pair to rise. That said, the bears need validation from the 100-DMA, close to 161.10 at the latest, to regain control.