- GBP/JPY fell to near three-month lows and came under pressure from a combination of factors.
- Disappointing UK macro data confirmed the BoE’s gloomy outlook and weighed on the pound.
- A generally lower risk tone benefited the safe-haven JPY and contributed to the selling bias.
The GBP/JPY cross added to its intraday losses and fell to its lowest since March 22, around the 157.80 region in reaction to disappointing macro releases from the UK.
The preliminary UK GDP report showed the UK economy grew by 0.8% in the first quarter of 2022, compared to 1.3% growth recorded in the previous quarter and 1.0% expected. The monthly release showed the UK economy contracted 0.1% in March, missing consensus estimates of a modest 0.1% rise.
Separately, the Office for National Statistics (ONS) said manufacturing and industrial production fell 0.2% in March, missing both consensus estimates. Separately, UK goods trade balance data showed an unexpected jump in the deficit to £23.897 billion in March, from £21.614 billion the previous month.
The data builds on a gloomy economic outlook from the Bank of England and the National Institute for Economic and Social Research (NIESR), warning that Britain is on the verge of entering a technical recession. This, in turn, was seen as a key factor that weighed heavily on the British pound and put pressure on the GBP/JPY pair.
On the other hand, the recent sell-off in global equity markets has supported the Japanese Yen’s relative safe haven status and further contributed to the offered tone surrounding the GBP/JPY pair. The final leg down validated the overnight downside break in the 159.75 region and supports the outlook for further losses.
Therefore, some follow-up selling to test an important horizontal resistance breakout around the 157.35 region remains a distinct possibility. That said, the RSI (14) on the hourly charts is already showing oversold conditions and warrants caution from aggressive bearish traders, although the path of least resistance is on the downside.