GBP/JPY declines to near 187.40 on risk aversion, softer Japanese unemployment rate

• GBP/JPY continues to lose ground as risk aversion heightens due to the Middle East tension.
• Japan’s Unemployment Rate contracted to 2.4% in December from 2.5% prior.
• Biden administration is expected to go for military actions in retaliation to the recent drone attack.
• BoE is expected to maintain its current interest rate of 5.25% in its February meeting.

GBP/JPY extends its losses for the second session on Tuesday, edging lower to near 187.40 during the Asian session. The GBP/JPY cross faces a challenge of risk-off sentiment due to the escalated situation in the Middle East, which drives the investors toward the safe-haven Japanese Yen (JPY), which in turn, acts as a headwind for the GBP/JPY pair.

The expectation is that the administration of US President Joe Biden will give the go-ahead for military actions in retaliation to the recent drone attack on a US outpost in Jordan. This attack led to the loss of three US troops and left at least 24 individuals injured.

December’s Unemployment Rate, which comes from the Ministry of Health, Labor and Welfare, showed a reduction in the percentage of unemployed people in Japan. The report showed a contracted figure of 2.4% against the market consensus of remaining consistent at 2.5%. Furthermore, the investors will eye on Retail Trade data scheduled to be released on Wednesday. The annual rate is predicted to print a reading of 4.7% in December, contracting from 5.3% prior.

The Bank of England (BoE) is expected to keep interest rates unchanged at 5.25% during its February monetary policy meeting. Members of the BoE have stressed the importance of maintaining a prolonged period of restrictive monetary policy to address inflation concerns.

BoE Governor Andrew Bailey has expressed the view that it is premature to consider lowering interest rates. Nevertheless, if there are indications that the inflation situation is improving, the central bank might reconsider its stance on rate cuts. Market participants have adjusted their expectations for rate cuts, with the first fully priced in for June instead of May as initially anticipated before the decision.