GBP/JPY slumps back to 154.00 level as risk-off flows, weak UK data hit sterling and lower yields, safe haven demand help yen

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GBP/JPY was down 0.7% on Friday, falling from above 155.00 to around 154.00.

Risk-off flows and weak UK data weakened sterling, while safe haven demand and lower global bond yields strengthened the yen.

GBP/JPY fell sharply on Friday and sharp falls in global stocks and commodities weighed on risk-sensitive currencies like sterling, while a sharp fall in global bond yields on safe-haven demand boosted the rate-sensitive yen.

Much worse-than-expected UK retail sales for December made matters worse for the GBP and while it wasn’t the worst-performing G10 currency on the day, it fell 0.7% against the yen, which was the second-performing G10 currency after its safe -Port counterpart of the CHF. The net result for GBP/JPY was that it fell sharply from above 155.00 down to 154.00 where it is currently stabilizing ahead of the weekend FX market close.

After the GBP/JPY dropped below the 155.50 level on Thursday, above which it had been consolidating within a descending trend line in recent sessions, the pair’s technical momentum has deteriorated significantly.

As poor earnings and fears of Fed tightening lead to losses in US stocks (and global stocks) that could last into next week, GBP/JPY bears will test the 50-day and 200-day moving averages in the range 153.00 to 153.40 to watch before key. Support around 152.50 area.

Amid a lack of significant economic events to distract from these issues, aside from the potentially eye-catching January UK PMIs on Monday, fundamental catalysts for GBP outperformance are few and far between.

The BoE is likely to hike rates again in February, which could reignite some GBP/JPY upside given central bank divergence, but that could take a few more weeks.