The GBP/JPY cross saw a fresh wave of selling on Wednesday, interrupting the strong rebound from the previous day that was just shy of the notable 215.00 level. Prices are currently lingering around the mid-215.00 range during early European trading. However, sellers should probably tread carefully, as there’s been no significant follow-up selling.
Uncertainty over the US-Iran peace talks has helped the US dollar hold onto its status as a reserve currency, which is putting pressure on the British pound. This situation is likely affecting the GBP/JPY cross negatively. Meanwhile, the Japanese yen is facing challenges in attracting solid buyers due to ongoing economic worries related to tensions in the Middle East. These concerns may dampen any substantial declines in the currency pair.
There’s a growing apprehension among investors about the stress on Japan’s economy, especially with the disruptions in shipping through the Strait of Hormuz threatening energy supplies. Indeed, shipping traffic has decreased significantly due to Iran’s restrictions on travel and the US blockade of Iranian ports. This scenario undermines the more hawkish stance of the Bank of Japan and puts yen bulls in a tough spot.
As expected, Japan’s central bank decided to keep the benchmark interest rate steady at 0.75% following its two-day meeting. However, a split vote of 6-3, with three members advocating for a rate increase alongside upward revisions to inflation forecasts, suggests a hike could be on the table for June or July. This, along with intervention worries, might mitigate potential losses for the yen ahead of an upcoming central bank event and restrict movement in the GBP/JPY cross.
On Thursday, the Bank of England is anticipated to reveal its decision, with expectations for at least two rate hikes before the year’s end. Traders are also factoring in a 70% chance of tightening in June. So, the outlook will be crucial in shaping the direction of the pound, along with the GBP/JPY cross. It might be prudent to hold off until a strong follow-through on selling occurs before concluding that the market has peaked around the 216.00 level.
