On Thursday, the pound against the yen dropped significantly to around 213.20, a decline of about 2.4%. This shift was largely due to a sudden strengthening of the Japanese yen in response to the monetary policy announcement from the Bank of England, which overshadowed the pound’s reaction.
As anticipated, the Bank of England decided to keep its policy interest rate steady at 3.75%. This decision was perceived as a hawkish stance since six committee members opted for no change while three favored a 25 basis point increase to 4.00%. This split was notably larger than the market’s expectation of just two votes in favor of a rate hike.
The Bank acknowledged that inflation in the UK had dipped to 2.6% as of June. However, they cautioned that increasing energy prices could push inflation upwards again later in the year. Policymakers indicated that there are still risks to the inflation forecast, especially if rising energy costs lead to higher wages and prices.
Despite the divided opinions among the hawkish policymakers, the pound struggled to hold its ground against the yen. The Japanese currency surged throughout the market, causing the USD/JPY to drop below 160.00, impacting both EUR/JPY and GBP/JPY significantly. The rapid shift raised speculation that the Japanese Ministry of Finance might have instructed the Bank of Japan to buy yen, although this has not been officially confirmed.
Japanese officials have frequently signaled their readiness to take strong measures as the yen hovered near a 40-year low of about 164.00 yen against the US dollar. The events of Thursday seem to align with potential interventions aimed at stabilizing excessive and unilateral currency fluctuations.
Short-term technical analysis:
Examining the 4-hour chart, GBP/JPY is present at 213.06, with a noticeable bearish trend emerging after dropping well below recent consolidation levels. Currently, the pair trades beneath both the 20-period simple moving average (SMA) of 217.61 and the 100-period SMA of 217.87, indicating a worsening trend structure, which is likely to limit any recovery attempts for the time being. The Relative Strength Index (RSI) has dipped into oversold territory around 15; this suggests potential for further decline, yet multiple overhead resistance levels keep prices stagnant, with a fragile outlook for recovery.
On the upside, the nearest resistance level is at the recent barrier of 213.96, followed by 215.50 and 217.40, where the 20-period and 100-period SMAs converge. Conversely, initial support is detected at 214.70, which could trigger a corrective pullback if selling pauses. Despite the oversold RSI situation, a break below this support would likely lead to additional losses in upcoming sessions.
