GBP/JPY holds steady near monthly top, just below mid-151.00 ahead of UK PMIs/BoE
- GBP/JPY gained some follow-through traction for the third successive day on Thursday.
- A weaker tone surrounding the USD benefitted the sterling and provided a modest lift.
- The risk-on mood undermined the safe-haven JPY and remained supportive of the move.
- Investors now look forward to the BoE decision before placing aggressive directional bets.
The GBP/JPY cross maintained its bid tone through the early European session and was last seen trading just a few pips below the monthly top, around the 151.35-40 region.
A combination of factors assisted the GBP/JPY cross to build on this week's bounce from the 149.75 region and gained some follow-through traction for the third successive day on Thursday. The prevalent risk-on mood undermined the safe-haven Japanese yen. On the other hand, a softer tone surrounding the US dollar benefitted the British pound and remained supportive of the ongoing positive move.
That said, the rapid spread of the Omicron variant and the imposition of fresh restrictions in the UK has raised uncertainty about the economic recovery in the short term. In fact, the UK recorded 78,610, or the highest number of COVID-19 cases on Wednesday. Moreover, England's chief medical officer Prof Chris Whitty warned that there could be a staggering rise in cases over the next few weeks.
This, in turn, could act as a headwind for the sterling and kept a lid on any further gains for the GBP/JPY cross amid diminishing odds for an imminent interest rate hike by the Bank of England. Most analysts believe that fresh economic turmoil led by the new Omicron variant could persuade the UK central bank to hold its fire. Hence, the focus will be on the BoE policy meeting this Thursday.
Heading into the key central bank event risk, investors might be reluctant to place aggressive bets, rather prefer to wait on the sidelines. This might further contribute to capping the upside for the GBP/JPY cross, at least for the time being. In the meantime, traders on Thursday will take cues from the December flash UK Manufacturing and Services PMI prints for some short-term opportunities.
Technical levels to watch