On Thursday, the GBP/JPY pair broke above the round level of 199.00. Yesterday, U.K. Chancellor Rachel Reeves stated her intention to strictly control government spending in order to reduce inflation and borrowing costs. These remarks helped ease investor concerns caused by the recent sharp drop in U.K. government bonds. Additional support for the pound and the GBP/JPY pair came from Wednesday's PMI – the U.K. services sector business activity index – which exceeded market expectations.
The Japanese yen is under pressure due to domestic political uncertainty and unclear prospects for the Bank of Japan's future interest rate steps. On Tuesday, Bank of Japan Deputy Governor Ryozo Himino stressed that the regulator is in no hurry to raise still-low rates. However, Bank of Japan Governor Kazuo Ueda expressed readiness to continue tightening monetary policy if economic indicators and inflation align with forecasts.
Investors lean toward the view that the Bank of Japan will continue its normalization policy thanks to steady wage growth, unstable inflation, and improving economic prospects. At the same time, Bank of England Governor Andrew Bailey indicated a gradual lowering of interest rates in the future. Such divergence in expectations restrains active trading positions and limits the growth of the GBP/JPY pair.
Today, for better trading opportunities, attention should be paid to the release of the U.K. construction PMI, which may set the tone for the pair during the European session. The key event afterward will be Japan's wage data, which will significantly influence expectations regarding the timing of the next Bank of Japan rate hike and, accordingly, affect yen dynamics and the movement of the GBP/JPY pair.
From a technical perspective, the pair has broken through the round level of 199.00 and the confluence of the 9- and 14-day EMAs, signaling emerging momentum strength. At the moment, it is overcoming the 199.30–199.40 zone, above which the target will be the round level of 200.00. After that, the price may test the August and July highs around 200.25.
On the other hand, the pair has found support at the confluence of the 9- and 14-day EMAs, with additional support from the 50-day SMA at 198.40, before the round level of 198.00. A drop below this round level would give bears the upper hand. Oscillators on the daily chart are positive, providing hope for further GBP/JPY growth.
