GBP/JPY advanced towards 173.90 amid upbeat UK data

• GBP/JPY closed at its highest level since 2016 and reached overbought conditions
• UK’s S&P May’s Manufacturing PMI came in at 47.1 vs 46.9 expected
• The Yen weakened against its major rivals

The GBP/JPY traded with gains around the 173.80 area in Thursday’s session. The Sterling Pound strengthened against its major rivals while the Japanese Yen weakened against the Euro, Swiss and the Australian Dollar. In addition, upbeat manufacturing PMI from the UK and yield divergence between the British and Japanese yields seem to propel the pair.

Yield divergence favors the Sterling

The British yields are on the upswing. The 10-year bond yield reached 4.16% and exhibited a gain of 0.86%. The 2-year yield stands at 4.32% with an increase of 0.32%, while the 5-year yield is at 4.09% having increased 0.86%. In contrast, the Japanese yields experienced a downturn across the curve, with the 2 and 5-year rates seeing losses of more than 5% applying further pressure on the pair.

For Friday’s session, both British and Japanese economic calendars will remain empty and attention should turn to the US Nonfarm Payrolls from May. It may have an impact on the expectations for the upcoming June 13-14 Federal Reserve (Fed) meeting. 

Levels to watch

According to the daily chart, the GBP/JPY holds a bullish outlook for the short term as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) suggest that the buyers are in control while the pair trades above its main moving averages. However, the near overbought conditions of the pair may suggest a technical correction in the upcoming session.

The 172.50 zone is key for GBP/JPY to maintain its upside bias. If breached, we could see a more pronounced decline towards the psychological mark at 172.00 and 171.55 area where the 20-day Simple Moving Average (SMA) stands. Conversely, resistances line up at the 174.00 followed by the 174.30 and the 174.50 zone.