GBP/JPY corrects sharply from multi-week highs, dips below 155.50 after BoE

• GBP/JPY fell more than 120 pips from a four-week high in a knee jerk reaction to the BoE decision.
• The BoE raised rates by 25 bps, disappointing some investors who had anticipated a more aggressive rate hike.
• Ukraine diplomacy hopes undermined the JPY safe haven and provided support ahead of the BoJ.

The crossing GBP/JPY witnessed aggressive selling around the Bank of England announced its policy decision and fell to a fresh daily low around the 155.45 area during the mid European session.

Sterling weakened across the board in reaction to the BoE’s decision to raise interest rates by 25 bps, disappointing some investors who had expected a more aggressive rise in borrowing costs. Furthermore, the 8-1 MPC vote spread was seen as another contributing factor to the GBP/JPY pair’s dramatic intraday reversal from a four-week high around the 156.70 region.

Barring the instinctive drop, the GBP/JPY cross lacked follow-up selling amid hopes for a diplomatic solution to end the war in Ukraine, which continued to undermine the safe haven of the Japanese yen. This, coupled with expectations that the Bank of Japan (BoJ) will maintain its dovish policy stance at the upcoming meeting on Friday, weighed on the JPY and extended support to the GBP/JPY cross.

However, the pair, for now, appears to have broken four straight days of winning streak as traders begin to reposition themselves for BoJ event risk. Aside from this, new developments surrounding the Russia-Ukraine saga will influence broader market risk sentiment and boost demand for traditional safe-haven assets. This in turn should produce some trading opportunities around the GBP/JPY cross.

Technical levels