GBP/JPY consolidates its recent gains to two-week high, stuck in a range around 168.00

• GBP/JPY struggles to gain any meaningful traction and consolidates near a two-week high.
• Bets for additional rate hikes by the BoE underpin the British Pound and acts as a tailwind.
• A modest pickup in demand for the JPY keeps a lid on any meaningful upside for the cross.
• The BoJ’s dovish stance might continue to weigh on the JPY and favours the GBP/JPY bulls.

The GBP/JPY cross oscillates in a narrow band around the 168.00 mark through the early European session on Tuesday and consolidates its recent gains to a two-week high.

Expectations that the Bank of England will continue hiking interest rates to curb inflation, along with subdued US Dollar demand, benefit the British Pound and offers support to the GBP/JPY cross. That said, a bleak outlook for the UK economy acts as a headwind for the Sterling. It is worth mentioning that the UK Office for Budget Responsibility (OBR) now projects the UK GDP to slump by 1.4% next year as compared to a growth of 1.8% forecast in March.

Apart from this, a modest pickup in demand for the Japanese Yen keeps a lid on any meaningful upside for the GBP/JPY cross, at least for the time being. The downside potential, however, seems limited amid a dovish stance adopted by the Bank of Japan. In fact, BoJ Governor Haruhiko Kuroda reiterated on Friday that the central bank will stick to its monetary easing to support the economy and achieve the 2% inflation target in a sustained, stable fashion.

This marks a big divergence in comparison to other major central banks, which should continue to weigh on the JPY. In the absence of any major market-moving economic releases, the fundamental backdrop suggests that the path of least resistance for the GBP/JPY cross is to the upside. That said, the lack of strong follow-through buying warrants some caution before positioning for an extension of the recent bounce from the 100-day SMA support tested last week.

Technical levels to watch