• GBP/JPY struggles to capitalize on its modest intraday gains to a multi-day peak.
• The BoE’s less hawkish signals undermine the British Pound and cap the upside.
• A softer risk tone benefits the safe-haven JPY and also contributes to keeping a lid.

The GBP/JPY cross climbs to a four-day high on Tuesday, albeit struggles to capitalize on the momentum and fails ahead of the 183.00 round-figure mark. Spot prices erase a major part of the intraday gains and retreat to the 182.35-182.30 region during the early part of the European session.

Data released earlier today showed that real wages in Japan fell for a 15th straight month in June and nominal pay growth also slowed. This reaffirms expectations that the Bank of Japan (BoJ) will stick to its dovish stance, which, in turn, weighs on the Japanese Yen (JPY) and acts as a tailwind for the GBP/JPY cross. In fact, the BoJ has emphasised that a sustainable pay hike is a prerequisite to consider exiting easy policies and dismantling its massive monetary stimulus.

Moreover, the BoJ’s Summary of Opinions released on Monday revealed that policymakers backed the case for the need to patiently continue with the current monetary easing towards achieving the price stability target. That said, weaker Chinese trade data dampens investors’ appetite for riskier assets and helps limit losses for the safe-haven JPY. This, in turn, holds back traders from placing bullish bets around the GBP/JPY cross, instead attracts fresh sellers at higher levels.

The British Pound (GBP), on the other hand, is weighed down by a report from the British Retail Consortium, which showed that UK Retail Sales in July registered its weakest year-on-year growth since August 2022. This comes after the UK’s Recruitment and Employment Confederation (REC) on Monday revealed downbeat employment conditions in Britain due to economic pessimism and the Bank of England’s (BoE) less hawkish forward guidance, which, in turn, caps the GBP/JPY cross.

It is worth recalling that the BoE raised its key benchmark interest rate by 25 bps to a 15-year peak level of 5.25% last Thursday and signalled that the tightening cycle may be nearing an end. The UK central bank called its current monetary policy stance “restrictive” and forced investors to scale back expectations for the peak rate. This contributes to Sterling’s relative underperformance and contributes to keeping a lid on any further gains for the GBP/JPY cross.

The aforementioned mixed fundamental backdrop, meanwhile, warrants some caution before positioning for the next leg of a directional move. Traders might also prefer to wait on the sidelines ahead of this week’s important macro releases, including the prelim Q2 GDP print, on Friday. In the meantime, the BoJ-BoE monetary policy divergence might continue to lend some support to the GBP/JPY cross and help limit any corrective decline, at least for the time being.

Technical levels to watch

GBP/JPY