Market Analysis

The GBP/JPY pair extends its pullback from the weekly highs above the 188.00 mark, continuing the downward trend seen late the previous day. However, spot prices have managed to recover over 100 pips from the daily low, trading slightly above the mid-185.00s in the early European session on Thursday.

The Bank of Japan's (BoJ) summary of opinions from its July policy meeting revealed that some members are open to further rate hikes and policy normalization. This, coupled with a generally weaker risk sentiment, supports the safe-haven appeal of the Japanese Yen (JPY), putting additional pressure on the GBP/JPY pair. Market sentiment remains fragile due to ongoing concerns about economic slowdowns in the US and China—the two largest economies globally—and escalating geopolitical tensions in the Middle East.

Conversely, the British Pound (GBP) is finding support from some selling pressure on the US Dollar (USD), which helps attract dip-buying interest near the 184.45 region in the GBP/JPY pair. However, any significant upside remains limited amid ongoing unrest in the UK and dovish expectations for the Bank of England (BoE). Last Thursday, the BoE cut interest rates for the first time in over four years, bringing them down from a 16-year high to 5.0%. Market participants are also factoring in the possibility of two more rate cuts by the end of the year.

Meanwhile, BoJ Deputy Governor Shinichi Uchida downplayed the likelihood of a near-term rate hike on Wednesday. Nonetheless, recent hawkish remarks by BoJ Governor Kazuo Ueda suggest that further policy tightening remains a possibility. As a result, it may be wise to wait for sustained buying momentum before concluding that the GBP/JPY pair has established a near-term bottom and is poised for an extension of this week's rebound from the 180.00 psychological level, which marks a more than seven-month low.

Paraphrasing text from "FX Street" all rights reserved by the original author.