Faces Volatility Amidst Interest Rate Hike

Regarding technical analysis, the GBP/JPY currently faces a significant support level at ¥180. 

• The GBP/JPY experienced an initial surge during Thursday’s trading session, reflecting the upward pressure it has encountered over the past few weeks.
• However, the gains were partially retraced as the Bank of England surprised the market by raising interest rates by 50 basis points, twice the anticipated amount of 25 basis points.
• This unexpected move has left some questioning whether the BoE exhausted all its ammunition in a single shot. Additionally, the loose monetary policy adopted by the Bank of Japan (BoJ) suggests a potential for further upward movement in the currency pair, as the Japanese have reaffirmed their commitment to quantitative easing.

Regarding technical analysis, the GBP/JPY currently faces a significant support level at ¥180. This is psychologically important, and the round figure is expected to bear substantial market weight. A further decline toward the ¥177.50 level should be possible if the pair breaks below this level. However, despite potential downward pressure, the market is likely to find support around the ¥175 mark, which has previously proven significant. Additionally, the 50-Day Exponential Moving Average is approaching this area as well.

Considering the current scenario, short-term pullbacks in the GBP/JPY pair are considered buying opportunities. The market appears to be seeking to reach the ¥185 level in the near term. Looking ahead, there is even potential for the pair to climb as high as ¥200 over the longer term. Consequently, long-term traders are expected to hold onto their positions, with a positive outlook for further gains. Nevertheless, due to the nature of this currency pair, volatility is expected, as it has been a characteristic of their historical trading relationship.

At the end of the day, the British pound’s recent performance against the Japanese yen has been marked by fluctuations following the Bank of England’s surprise interest rate hike. While concerns linger over the sustainability of the BoE’s aggressive move, the loose monetary policy implemented by the Bank of Japan supports the possibility of further appreciation in the GBP/JPY pair. From a technical standpoint, the ¥180 level holds significance, and any breakdown below this level may lead to a decline toward ¥177.50. Nevertheless, both the ¥175 support level and the presence of the 50-Day EMA should act as a buffer against excessive downward pressure. Pullbacks are perceived as buying opportunities in the short term, as the market aims to reach ¥185. The GBP/JPY pair may even aspire to achieve the ¥200 mark over a more extended timeframe. Traders should remain aware of the inherent volatility associated with this particular currency pair.

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