The GBP/JPY cross attracted some intraday selling near the 163.75-163.80 region on Thursday and dived to its lowest level since May 27 after the Bank of England announced its policy decision. The cross, however, quickly recovered over 100 pips and was last seen trading above the 161.00 round figure.
The US central bank projected a slowdown in economic growth and rising unemployment in the months to come on Wednesday. The Fed's gloomy outlook added to market concerns that a more aggressive move by major central banks to curb inflation would pose challenges to the global economic recovery.
Apart from this, the global supply chain disruptions caused by the Russia-Ukraine war and the latest COVID-19 lockdowns in China further fueled recession fears. This, in turn, took its toll on the risk sentiment, which boosted demand for traditional safe-haven assets and benefitted the Japanese yen.
This, along with some repositioning trade ahead of the Bank of Japan meeting on Friday, forced investors to lighten their bearish bets around the JPY. This was seen as a key factor that exerted some downward pressure on the GBP/JPY cross, which lost additional ground after the BoE announcement.
As was widely anticipated, the UK central bank decided to hike interest rates for the fifth consecutive time to curb soaring inflation. The nine-member Monetary Policy Committee (MPC) voted 6-3 for the 25 bps hike in the bank rate from 1.0% to 1.25%, with the minority voting for a 50 bps increase.
In the accompanying policy statement, the BoE noted that it was ready to act "forcefully" to stamp out dangers posed by the persistent rise in inflationary pressures. This suggested that the central bank would opt for a more gradual approach amid recession fears and weighed on the British pound.
Despite the negative factors, the GBP/JPY cross showed some resilience near the 160.00 psychological mark and found some support just ahead of the 100-day SMA. This warrants caution before positioning for an extension of the recent sharp pullback from a multi-year peak touched earlier this month.
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