The GBP/JPY cross extended its sideways consolidative price move and held steady, comfortably above the 151.00 round-figure mark post-UK macro data.
The cross struggled to capitalize on the previous day's strong move up and seesawed between tepid gains/minor losses through the early European session on Wednesday. The worsening COVID-19 situations in the United Kingdom, along with the UK-EU impasse over the Northern Ireland Protocol acted as a headwind for the sterling and capped the upside for the GBP/JPY cross.
In fact, Britain reported 90,629 new Covid-19 cases on Tuesday, slightly lower from the all-time high of 91,743 recorded the previous day. The UK Prime Minister Boris Johnson ruled out the possibility of imposing additional restrictions before Christmas, though said the Omicron variant related data will be kept under review to see if stricter measures are needed next week.
On the Brexit-related front, the UK Foreign Minister Liz Truss – now in charge of Brexit negotiations – said that their position on the Northern Ireland Protocol remains unchanged. She further added that we must end the role of the European Court of Justice as a final arbiter in the arrangement and that the UK remains prepared to trigger Article 16 if this does not happen.
Meanwhile, data released on Wednesday showed that the UK economy expanded 1.1% during the third quarter of 2021, lower than the 1.3% estimated in the preliminary report. This, however, was offset by an upward revision of the yearly growth rate to 6.8% from 6.6% reported previous. The data did little to impress traders or provide any meaningful impetus to the GBP/JPY cross.
On the other hand, signs of stability in the equity markets and the Bank of Japan's dovish stance undermined the safe-haven Japanese yen. The minutes of the latest BoJ meeting showed that board members backed the need to maintain ultra-lose policy measures as the 2% inflation target is still far off. This, in turn, extended support to the GBP/JPY cross and helped limit the downside.
The mixed fundamental backdrop held traders from placing aggressive bets amid relatively thin liquidity conditions heading into the year-end holiday season. Hence, it will be prudent to wait for a strong follow-through buying before confirming that the GBP/JPY cross has formed a near-term bottom and positioning for any meaningful appreciating move.
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