GBP/JPY falls back into line post initial drop on BOE’s Vlieghe

GBP/JPY is reversing the initial downside post-BOE’s Vlieghe remarks.  The markets have been weighing up the idea that the UK may, in fact, require a rate rise to stave off inflationary pressures on the back of a weak currency. The retail sales data overnight was very strong as well and the UK economy continues to surprise investors despite all of the negativity around Brexit. Consumers are still confident and the economy remains robust. However, BOE’s Vlieghe, a dovish member, has played down the idea of a rate hike talk:

BOE’s Vlieghe, a dovish member, plays down rate hike talk

Meanwhile, the yen has been a top performer and the best of the G10's bar sterling. However, analysts at Scotiabank explained that the recent move has seen JPY trade in tandem with risk reversals in a manner that underscores the current dominance of sentiment. "JPY is now trading well above levels implied by yield spreads and appears vulnerable to a downward adjustment in the event of a shift in the broader tone," argued the analysts. Therefore, all eyes remain on the US and risk sentiment in regards to the delays to Trump's plans for fiscal spending this year.

Trump reflation trade under threat - ANZ

GBP/JPY levels

GBP/JPY has been range bound between 138 and 140 in the main part with a bearish bias. The cross has continued lower from the Dec highs at 148.44. However, the trend is a broader correction of the October reversal of the May 2016 highs and post-Brexit sell-off. The cross is a choppy sideways play with risks mounting to the downside below the 20 4hr sma at 139.09 with a target to 137.80 as a key support while the 140 handle keeps the pair neutral.