The GBP/JPY cross has sustained a defensive stance for the fourth consecutive day, showing resilience just above the mid-187.00s. The pair is still within reach of the weekly low set on Wednesday, as concerns over the Israeli-Hamas conflict persist. Investors fear a potential escalation in the Middle East, contributing to an uncertain global economic outlook. Despite the People’s Bank of China‘s recent monetary stimulus, the overall market sentiment remains cautious, reflected in a weaker tone across equity markets.
The ongoing conflict in the Middle East has heightened apprehensions about a broader regional confrontation, impacting risk appetite. This scenario has favored the Japanese Yen (JPY) due to its perceived safe-haven status, putting pressure on the GBP/JPY cross.
Additionally, the Bank of Japan (BoJ) adopted a hawkish stance on Tuesday, signaling the possibility of phasing out extensive stimulus measures and pulling short-term interest rates from negative territory. This has provided further support for the JPY. However, weaker Japanese economic data, notably the core Consumer Price Index (CPI) in Tokyo falling below the BoJ’s 2% target, has limited the JPY’s gains.
On the other hand, a robust start to the year for the UK economy offers support for the British Pound (GBP). The Bank of England (BoE) is likely to maintain interest rates in the upcoming week, providing a counterbalance to the downward pressure on the GBP/JPY cross.
While the pair is currently retracing from the recent high near the 189.00 round figure, a substantial follow-through selling is needed to confirm a continued pullback. The GBP/JPY cross is set to conclude the week in negative territory, with market attention shifting to the crucial BoE monetary policy meeting scheduled for February 1.
