The GBP/JPY currency pair found support near mid-189.00 levels, a one-week low, as dip-buying emerged early Monday. This halted a retracement from its near two-month high reached on Friday. The rebound pushed spot prices toward the 191.00 mark during the early European session, though analysts urge caution due to broader economic and geopolitical factors.
The Japanese Yen (JPY) weakened following remarks from Japan’s incoming Prime Minister, Shigeru Ishiba, who emphasized the need for the Bank of Japan (BoJ) to maintain an accommodative monetary policy to support Japan’s fragile economic recovery. News of a potential general election set for October 27 and mixed economic data further weighed on the yen, providing additional support for the GBP/JPY pair.
The British Pound (GBP), meanwhile, benefited from soft demand for the US Dollar (USD) and growing expectations that the Bank of England (BoE) will adopt a slower pace of interest rate cuts compared to the US Federal Reserve. This offered a tailwind for the GBP/JPY cross. However, rising market speculation that the BoJ may raise interest rates by year-end could temper JPY losses.
Geopolitical risks also play a significant role. Escalating tensions in the Middle East, following Israel’s aggressive airstrikes on Yemen’s Houthis and Lebanon’s Hezbollah, have raised fears of a wider conflict. Such developments could drive demand for the safe-haven yen, potentially limiting further gains in the GBP/JPY cross.
On the technical front, traders remain wary. The 50-day Simple Moving Average (SMA) crossed below the 200-day SMA earlier this month, forming a bearish ‘Death Cross’ on the daily chart. This suggests caution is warranted before betting on a sustained recovery in the absence of major economic data releases.
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