GBP/JPY trades around 204.00 after pulling back from 16-year highs

• GBP/JPY corrects from a 16-year high of 204.75 marked on Monday.
• BRC Shop Price Index, an indicator of inflationary pressures in the UK, rose by 0.2% YoY in June, below the prior 0.6% increase.
• The Japanese Yen may receive support from the verbal intervention by Japanese authorities.

GBP/JPY halts its winning streak that began on June 17, trading around 204.00 during the early European session on Tuesday. The GBP/JPY cross reached a level of 204.75 on Monday, the highest since August 2008.

This downturn can be attributed to the softer data released by the British Retail Consortium (BRC) on Tuesday. The BRC Shop Price Index (SPI) increased by 0.2% year-over-year in June, compared to the previous 0.6% increase. Changes in the SPI are closely monitored as an indicator of inflationary pressures in the United Kingdom (UK).

Additionally, the Bank of England's (BoE) dovish pause in June has increased expectations for a rate cut at the August monetary policy meeting, potentially weakening the British Pound (GBP) and affecting the GBP/JPY cross.

GBP traders will be watching the upcoming general election on Thursday. According to the latest exit polls, the Opposition Labour Party is anticipated to prevail over the Conservative Party led by UK Prime Minister Rishi Sunak.

On the JPY’s front, the verbal intervention by Japanese authorities might support the Japanese Yen and limit the upside of the GBP/JPY cross. Japanese Finance Minister Shunichi Suzuki stated on Tuesday that he is "closely watching FX moves with vigilance." Suzuki refrained from commenting on specific forex levels, noting that there is no change in the government's stance on foreign exchange, according to Reuters.

According to the latest Reuters survey conducted from June 25 to July 1, the Bank of Japan is expected to reduce its monthly bond purchases by roughly $100 billion (¥16.00 trillion) in the first year under a quantitative tightening (QT) plan set for release this month.