GBP/JPY, steady above 156.60, consolidates at five-year highs

• The pound consolidates gains near multi-year highs at 157.40.
• Sterling remains strong against an ailing yen.
• GBP/USD steady above 156.60; upside bias, intact.

The British pound is taking a breather on Monday, consolidating gains at five-year highs after having rallied nearly 5% over the last two weeks. The pair remains supported right above the February 2018 peak, at 156.60 with five-year highs at 157.40 on sight.

The pound remains strong against a weaker yen

The sterling remains firm across the board, supported by increasing expectations of interest rate hikes by the Bank of England next year. With energy prices surging and consumer inflation at levels almost twice the BoE’s target for price stability, some Bank officials are openly suggesting the possibility of accelerating the monetary policy normalization plan.

The BoE President, Andrew Bailey, has confirmed those speculations earlier today. Bailey has warned that the Bank of England "will have to act" over rising inflation, although he gave no hint about the bank’s calendar to increase interest rates.

On the other end, the Japanese yen is on the defensive, unable to take advantage of the risk-averse sentiment, triggered by poor Chinese data and revived concerns about inflation. The yen remains close to four-year lows against the US dollar, crushed by higher US T-bond yields, amid a widening monetary policy differential, with the market positioning for the tapering of the Federal Reserve’s monetary stimulus measures.

GBP/JPY: Immediate support lies at 156.60

From a technical point of view, the support level at 1.5660 (intra-day level) maintains the pair’s bullish bias intact. Below here, 156.05 (May 27 and 28 highs) and 154.00 (Jul 7 high) might be the next targets.

On the upside further rally above October 15 high at 157.40, the path seems clear until 159.95 (50% Fibonacci retracement of the 2015-16 decline) and April 2016 high at 162.80.

Technical levels to watch