The GBP/JPY currency pair experienced a reversal during the Asian session, bouncing back from a dip around the 178.80 level and skyrocketing to its highest point since December 2015. This sudden surge came shortly after the Bank of Japan (BoJ) announced its policy decision.
As widely anticipated, the Japanese central bank reaffirmed its dovish stance and opted to keep its ultra-loose policy settings unchanged following the June monetary policy meeting on Friday.
Moreover, diminished expectations of Japanese government intervention to stabilize the domestic currency, coupled with a generally positive sentiment surrounding equity markets, put pressure on the Japanese Yen (JPY).
As a result, the GBP/JPY cross found support from investors looking to buy on the dip on the final day of the trading week.
Conversely, the British Pound (GBP) continues to gain support due to expectations that the Bank of England (BoE) has not yet concluded its series of interest rate hikes. Inflation in the UK remains significantly above the 2% target, with a YoY rate of 8.7% recorded in April.
The markets have fully priced in another 25 basis points increase, raising the interest rate from 4.5% to 4.75% on June 22. Furthermore, investors now see a greater likelihood that the rate will reach its peak at 5.5% later this year. This factor is viewed as an additional tailwind for the GBP/JPY cross.
However, caution is warranted as the Relative Strength Index (RSI) on the daily chart indicates overbought conditions, potentially deterring traders from initiating fresh bullish positions on the GBP/JPY cross.
Investors may prefer to adopt a wait-and-see approach, eagerly awaiting comments from BoJ Governor Kazuo Ueda for fresh market direction. Nevertheless, spot prices are on track to register substantial weekly gains and appear poised to extend the strong upward trend observed over the past five weeks or so.
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