GBP/JPY slumps to two-month low; eyes mid-207.00s amid JPY strength, ahead of UK data

• GBP/JPY attracts heavy selling for the fourth straight day on Thursday amid relentless JPY buying.
• The divergent BoJ-BoE policy expectations further contribute to the pair’s steep weekly decline.
• Traders now look to the UK macro data, including the Q4 GDP, to grab short-term opportunities.

The GBP/JPY cross prolongs its weekly downtrend for the fourth straight day and dives to its lowest level since December 17, around the 207.65-207.60 region during the Asian session on Thursday. The downfall is exclusively sponsored by strong follow-through buying around the Japanese Yen (JPY), fueled by Prime Minister Sanae Takaichi's landslide victory in the lower house election on Sunday.

The clear political mandate gives Takaichi the leeway to pursue her expansionary policies. Moreover, investors remain hopeful that Takaichi could be more fiscally responsible and her policies will boost the economy, which might prompt the Bank of Japan (BoJ) to stick to its hawkish stance. Apart from this, speculations that authorities conducted rate checks following the release of the blowout US employment data trigger a fresh leg up in the JPY and exert heavy downward pressure on the GBP/JPY cross.

The JPY bulls, meanwhile, seem rather unaffected by softer domestic data, which showed that Japan's annual wholesale inflation slowed for a second consecutive month in January. Even the underlying bullish sentiment – as depicted by a generally positive tone around the equity markets – does little to hinder the safe-haven JPY's strong move up. Furthermore, the Bank of England's (BoE) dovish signal contributes to the British Pound's (GBP) underperformance and contributes to the GBP/JPY pair's decline.

From a technical perspective, this week's breakdown below the very important 200-day Simple Moving Average (SMA) seems to have aggravated the bearish pressure surrounding the currency pair. That said, the prevailing selling bias surrounding the US Dollar (USD) offers some support to the British Pound (GBP) and might limit losses for the GBP/JPY cross. Traders now look forward to the UK data dump, including the preliminary Q4 GDP report, which might influence the GBP and provide a fresh impetus.