GBP/JPY Nears Two-Week Low Below 161.00 as Risk-Aversion Pauses During Quiet Session

Tuesday's sluggish Tokyo open makes it difficult for GBP/JPY bears to maintain control. As US Treasury yields decline from a multi-month high, the cross-currency pair advances to the fourteenth round.

After a spectacular display of risk aversion, global markets are idle on Tuesday morning as US bond yields look for fresh indications to extend the earlier flight to safety. Mixed comments from Fed members and China's determination to continue a "zero covid" policy may have also contributed to the correction.

In doing so, the cross-currency pair pays some attention to Brexit-negative headlines as well as the most recent decline in prices to its intraday low, primarily owing to market consolidation. Thus, British Foreign Secretary Liz Truss abandoned Brexit negotiations with the European Union (EU). The Times also reports that the British ambassador is preparing for the elimination of a significant portion of the NI protocol. According to Reuters, "officials working for Truss have drafted legislation that would unilaterally eliminate the need for all checks on products sent from Britain for use in Northern Ireland."

Michael Saunders, an external member of the Bank of England's (BOE) Monetary Policy Committee, bolstered rate-hike fears on a different page by saying that a neutral rate may be between 1.25 percent and 2.5 percent. The policymaker said that UK interest rates may need to rise above neutral if inflation expectations rise, which appeared to have supported the GBP/JPY exchange rate recently.

US Treasury rates fall seven basis points (bps) to 3.008 percent, after reaching their highest levels since November 2018, while S&P 500 Futures increase 0.10 percent as of press time.

Moving forward, a light calendar and Brexit concerns may test GBP/JPY traders. However, the bearish impulse is likely to persist amid a widespread risk aversion wave. In addition, Prime Minister Boris Johnson's address to the House of Commons will be vital to follow.

Analytical Techniques

GBP/JPY bears maintain control unless the pair breaches a downward-sloping trend line from late April around 162.25. Nonetheless, the 50-day simple moving average and a six-week-old ascending support line at 160.00 and 159.85 appear to be significant supports to watch throughout the pair's subsequent drops.