GBP/JPY bounces off one-week low, still deep in the red below 190.00 mark

• GBP/JPY meets with aggressive supply and dives to over a one-week low on Thursday.
• Intervention threats, along with hawkish BoJ talks, provide a strong boost to the JPY.
• A softer risk tone further benefits the safe-haven JPY and contributes to the downfall.

The GBP/JPY cross comes under intense selling pressure on Thursday and retreats further from its highest level since August 2015, around the 191.30 area touched earlier this week. Spot prices dive to over a one-week low during the first half of the European session, though manage to rebound a few pips in the last hour and currently trade around the 189.65-189.70 region, still down nearly 0.60% for the day.

A fresh intervention warning by Japan's vice finance minister for international affairs Masato Kanda and the Bank of Japan (BoJ) board member Hajime Takata's hawkish remarks provide a strong boost to the Japanese Yen (JPY), which, in turn, prompts aggressive selling around the GBP/JPY cross. In fact, Kanda reiterated that the government stands ready to take appropriate action against excessive exchange-rate moves and volatility.

Separately, Takata said that achievement of the 2% inflation target is becoming in sight and that the central bank must consider taking a nimble and flexible approach towards an exit from ultra-loose monetary policy. Apart from this, a slight deterioration in the global risk sentiment – as depicted by the prevalent cautious mood around the equity markets – turns out to be another factor benefiting the JPY's relative safe-haven status.

The British Pound (GBP), on the other hand, is undermined by firming expectations that the Bank of England (BoE ) will start cutting interest rates soon. This further contributes to the GBP/JPY pair's steep intraday decline to the 189.35 zone. Meanwhile, policymakers have been trying to push back against market expectations for early interest rate cuts, which, in turn, lends some support to spot prices and helps limit further losses.

In fact, BoE Deputy Governor Dave Ramsden said on Tuesday that he wants more evidence that inflationary pressures were easing to consider a cut in interest rates. Adding to this, BoE's Catherine Mann said on Wednesday that the spending habits of wealthy Britons make it harder to curb inflation. This, in turn, warrants some caution before confirming that the GBP/JPY cross has topped out and positioning for deeper losses.