GBP/JPY spikes and retreats post-BoE, back closer to 143.00 handle

• GBP/JPY jumps back closer to session tops post-BoE decision.
• Renewed fears of a no-deal Brexit kept a lid on any runaway rally.
• Reviving safe-haven demand further collaborated towards capping.

The GBP/JPY cross rallied nearly 90 pips post-BoE announcement, albeit quickly retreated thereafter and is currently placed in the neutral territory, around the 143.30-20 region.

As was widely expected, the Bank of England decided to maintain status quo at the end of its December policy meeting held this Thursday. The British pound, however, gained some positive traction in reaction to a mildly hawkish tilt in the accompanying policy statement.

The BoE indicated that some modest tightening of policy, at a gradual pace and to a limited extent, may be needed to maintain inflation sustainably at the target. The statement dampened prospect of any imminent rate cut and lifted the cross back closer to the top end of its daily trading range.

Meanwhile, the uptick lacked any strong bullish conviction amid renewed concerns of a no-deal Brexit. It is worth recalling that the UK Prime Minister Boris Johnson has made it clear that his government seeks to pass legislation that will make it illegal to extend the Brexit transition period beyond the end of 2020.

The cross quickly retreated around 50 pips from the post-BoE swing high and was further pressurised by a modest pickup in demand for the Japanese yen. Against the backdrop of Brexit uncertainty, the impeachment of the US President Donald Trump weighed on investors' appetite for riskier assets and extended some support to perceived safe-haven currencies.

With Thursday's key event risk out of the way, it will now be interesting to see if the cross is able to attract any meaningful buying interest or continues with its recent sharp pullback from nine-month tops – set last Friday following a landslide victory for the Conservative Party in the most important UK elections.

Technical levels to watch