GBP/JPY drops towards 167.00 as China-linked fears join woes of UK’s nationwide strikes

• GBP/JPY takes offers to refresh intraday low, eyes the biggest daily loss in two weeks.
• Virus concerns from China escalate amid record high infections, protests against Zero-Covid policy.
• UK government struggles amid the wage increase in the public sector.

GBP/JPY renews its intraday low around 167.00 during early Monday while bracing for the biggest daily fall in a fortnight as risk-aversion joins pessimism surrounding the UK’s economy.

“British public-sector pay will not be able to keep up with soaring inflation, transport minister Mark Harper said on Sunday, as the country faces a wave of industrial disputes,” reported Reuters. The news also mentioned that industrial action is becoming more widespread across Britain's transport network and last week Britain's Royal College of Nursing trade union announced dates for its members' first strike in more than 100 years.

Elsewhere, the news of the UK’s home insulation program and downbeat British data, as well as the Covid fears emanating from China, seem to weigh on the GBP/JPY prices.

“Britain's government intends to make 1 billion pounds ($1.2 billion) of public funding available for home insulation projects from early next year, widening access to assistance that was previously only available to poorer households,” reported Reuters.

In the last week, the UK’s key activity numbers marked downbeat performance for November and keep the Bank of England (BOE) struggling for clear directions even as hawks expect more rate hikes.

On a different page, protests against China’s Zero-Covid policy in Shanghai and Beijing gain the market’s attention and weigh on the risk appetite, as well as on the GBP/JPY prices. China reported an all-time high of COVID-19 daily cases with nearly 40,000 new infections on Saturday. The dragon nation has been using the stringent policy to limit the virus spread but the outcome hasn’t been a positive one so far. Meanwhile, a deadly fire in a building was allegedly linked to the virus-linked lockdown measures and resulted in mass protests in Beijing and Shanghai.

Amid these plays, the US stock futures drop nearly 0.70% while the US 10-year Treasury yields fall 3.7 basis points (bps) to 3.66% by the press time.

Looking forward, risk catalysts will be crucial for GBP/JPY traders to watch for clear directions. It’s worth noting that the Bank of Japan’s (BOJ) favor for easy money can keep the GBP/JPY buyers hopeful despite the latest weakness.

Technical analysis

A two-month-old ascending trend line, around 166.50 by the press time, appears crucial challenge for the GBP/JPY bears. Meanwhile, a downward-sloping trend line from November 07, close to 169.00 by the press time, restricts the short-term recovery of the pair.