GBP/JPY clings to modest gains above 155.00, upside potential seems limited

• GBP/JPY gained traction on Wednesday and snapped three days of the losing streak.
• Hawkish BoE expectations helped revive the GBP demand and remained supportive.
• The cautious mood underpinned the safe-haven JPY and might cap any further gains.
• Investors also seemed reluctant ahead of the FOMC/BoE monetary policy meetings.

The GBP/JPY cross held on to its modest intraday gains through the early European session and was last seen hovering near daily tops, around the 155.20-25 region.

The cross gained some positive traction during the first half of the trading action on Wednesday and built on the previous day's modest bounce from the 154.65 area, or near three-week lows. This marked the first day of a positive move for the GBP/JPY cross and was supported by the emergence of some buying around the British pound.

Expectations for an imminent Bank of England interest rate hike move by the end of this year acted as a tailwind for the sterling, which further benefitted from a subdued US dollar demand. That said, the impasse over the post-Brexit arrangements for Northern Ireland might keep a lid on any meaningful upside for the GBP/JPY cross.

The recent talks between the EU and the UK to resolve the dispute ended without a major breakthrough. The markets also seem concerned that the UK Prime Minister Boris Johnson will trigger Article 16 of the Northern Ireland Protocol. Investors might also refrain from placing aggressive bets heading into critical central bank meetings.

The Fed is scheduled to announce its monetary policy decision later this Wednesday and the BoE MPC will meet on Thursday. In the meantime, the cautious market mood underpinned the safe-haven Japanese yen, which should further collaborate to cap gains for the GBP/JPY cross amid absent relevant market moving economic releases from the UK.

Technical levels to watch