GBP/JPY struggles below 183.00 as UK recession fears jostle with dicey yields, BoJ vs. BoE bias
- GBP/JPY retreats from intraday high but lacks downside momentum during the first loss-making day in three.
- NIESR forecasts UK recession but inflation expectations favor hawkish BoE bias.
- Yields grind lower as headlines from China allow pessimists to catch a breather.
- Dovish BoJ concerns keep buyers hopeful amid light calendar ahead of Friday’s UK GDP.
GBP/JPY lacks momentum while making rounds to 182.70-80 during early Wednesday in London, fading the two-day winning streak. In doing so, the cross-currency pair juggles multiple risk catalysts and the fears of the UK’s economic slowdown, as well as mixed central concerns, during the sluggish markets.
Earlier in the day, the UK's leading thinktank, the National Institute of Economic and Social Research (NIESR), said late Tuesday, per The Guardian, that it would take until the third quarter (Q3) of 2024 for British output to return to its pre-pandemic peak. “There was a 60% risk of the government going to the polls during a recession,” adds the NIESR per The Guardian.
On the positive side, the NIESR also expects the UK inflation to stay beyond the Bank of England’s (BoE) 2.0% target for the next four years and push the “Old Lady”, as the BoE is sometimes called informally, toward hawkish moves and defend the British Pound (GBP) bulls.
Elsewhere, the US 10-year Treasury bond yields dropped to the weekly low of around 3.98% before bouncing off 4.03% by the day’s end, making rounds to the said levels of late, whereas the S&P500 Futures remains mildly bid around 4,520 after Wall Street’s downbeat performance.
The market’s latest stabilization could be linked to the mixed China inflation data and the US government’s easy stand on banning the technology companies from Beijing.
Furthermore, multiple policymakers’ defense of the Bank of Japan’s (BoJ) ultra-easy monetary policy, despite tweaking the Yield Curve Control (YCC) practices in the last, seems to weigh on the Japanese Yen (JPY), especially amid the lack of major data/events.
Moving forward, Japan’s Producer Price Index (PPI) and the fears about the UK recession, as well as challenges for the global banking system, may entertain the GBP/JPY traders. However, major attention will be given to the British Gross Domestic Product (GDP) data for the second quarter (Q2), up for publishing on Friday.
Technical analysis
GBP/JPY remains indecisive between a two-month-old resistance line surrounding 183.00 and an ascending trend line from July 28, close to 182.00 by the press time.