- GBP/JPY dropped to a near three-month low and was pressured by a combination of factors.
- Disappointing UK macro data reaffirmed the BoE’s bleak outlook and weighed on sterling.
- A generally weaker risk tone benefitted the safe-haven JPY and contributed to the selling bias.
The GBP/JPY cross added to its intraday losses and dropped to its lowest since March 22, around the 157.80 region in reaction to disappointing UK macro releases.
The Preliminary UK GDP report showed that the British economy expanded by 0.8% during the first quarter of 2022 as against the 1.3% growth recorded in the previous quarter and the 1.0% anticipated. The monthly release showed that the UK economy contracted by 0.1% in March, missing consensus estimates for modest 0.1% rise.
Separately, the Office for National Statistics (ONS) reported that Manufacturing and Industrial output declined by 0.2% in March, both missing consensus estimates. Separately, the UK goods trade balance data showed an unexpected jump in deficit to £23.897 billion in March from £21.614 billion reported in the previous month.
The data comes on the back of a bleak economic outlook by the Bank of England and the National Institute of Economic and Social Research (NIESR), warning that Britain is on course to enter a technical recession. This, in turn, was seen as a key factor that weighed heavily on the British pound and exerted pressure on the GBP/JPY cross.
On the other hand, the recent sell-off across the global equity markets underpinned the Japanese yen's relative safe-haven status and further contributed to the offered tone surrounding the GBP/JPY cross. The latest leg down validated the overnight bearish breakdown through the 159.75 region and supports prospects for further losses.
Hence, some follow-through selling towards testing an important horizontal resistance breakpoint, around the 157.35 region, remains a distinct possibility. That said, RSI (14) on hourly charts is already flashing oversold conditions and warrants caution for aggressive bearish traders, though the path of least resistance is to the downside.
