GBP/JPY trades with modest losses, holds above mid-189.00s ahead of UK CPI

• GBP/JPY pulls back from a multi-year peak touched on Tuesday amid a pickup in the JPY demand.
• Verbal intervention from the Japanese authorities, along with the risk-off mood, underpin the JPY.
• Diminishing odds for an early BoE rate cut could help limit losses for the cross ahead of the UK CPI.

The GBP/JPY cross meets with some supply during the Asian session on Wednesday and erodes a part of the previous day's strong gains to the 190.00 psychological mark, or its highest level since August 2015. Spot prices currently trade just above the mid-189.00s, down over 0.10% for the day, though any meaningful corrective decline still seems elusive.

The Japanese Yen (JPY) attracts some haven flows in the wake of the risk-off impulse and draws additional support from verbal intervention by Japanese authorities. In fact, Japan’s top currency diplomat Masato Kanda said that the government is closely watching FX moves with a high sense of urgency and is ready to take appropriate action, including intervention, if needed. Adding to this, Japan's Finance Minister Shunichi Suzuki said that rapid FX moves are undesirable and that the government is watching the market with even stronger urgency, though made no comments on intervention. Nevertheless, the comments provide a modest lift to the JPY and turn out to be a key factor exerting some downward pressure on the GBP/JPY cross.

The downside, however, remains cushioned in the wake of reduced bets for early interest rate cuts by the Bank of England (BoE), which might continue to act as a tailwind for the British Pound (GBP). The official data released on Tuesday showed that UK Unemployment Rate was lower than expected in the last three months of 2023 and resilient wages, which have been a driver of sticky consumer price inflation. This gives the BoE more reason to be cautious over the timing of the first interest cut. The market focus now shifts to the latest UK consumer inflation figures, due later today, which might influence the GBP and provide some impetus to the GBP/JPY cross ahead of BoE Governor Andrew Bailey's testimony later this Wednesday.

This week's UK economic docket also features the release of the Preliminary Q4 GDP print and monthly Retail Sales figures on Thursday and Friday, respectively. The crucial data should influence market expectations about the BoE's future policy decision and infuse some volatility around the GBP/JPY cross. Bulls, meanwhile, could turn cautious amid speculations about a possible JPY intervention and bets for an imminent shift in the Bank of Japan's (BoJ) policy stance.

Technical levels to watch