GBP/JPY sticks to strong intraday gains, just below mid-128.00s

• A combination of supporting factors assisted GBP/JPY to regain positive traction on Friday.
• Mostly upbeat UK macro data reaffirmed BoE rate hike bets and benefitted the British pound.
• A positive risk tone undermined the safe-haven JPY and remained supportive of the move up.

The GBP/JPY cross maintained its strong bid tone through the first half of the European session and was last seen trading near the daily high, just below mid-128.00s.

Following the previous day's sharp pullback of nearly 150 pips from over a one-week high, the GBP/JPY cross caught fresh bids on Friday and was supported by a combination of factors. The British pound drew support from encouraging UK macro data, which reaffirm expectations that the Bank of England will hike interest rates at the upcoming meeting. On the other hand, signs of stability in the financial markets weighed heavily on the safe-haven Japanese yen and provided an additional boost to spot prices.

The monthly UK GDP report released earlier today showed that the economy bounced back sharply from the 0.2% decline in December and expanded by 0.8% in January, higher than market expectations. Adding to this, industrial output rose 0.7% MoM in January, primarily driven by 0.8% growth in manufacturing production. Furthermore, services sector output increased by 0.8% during the reported month as against a 0.5% fall recorded in December and largely offset the disappointment from the Goods Trade Balance data.

Meanwhile, hopes of a diplomatic solution to the Ukraine crisis helped the global risk sentiment to recover a bit on Friday and drove flows away from traditional safe-haven assets. It is worth mentioning that talks between the Russian and Ukrainian foreign ministers ended without any notable progress on Thursday. That said, the fact that Russia has softened its stance recently seemed to have fueled the latest optimism, which was evident from a generally positive tone around the global equity markets.

The fundamental backdrop seems tilted in favour of bulls and supports prospects for a further near-term appreciating move. That said, bulls are likely to wait for some follow-through buying beyond the overnight swing high before positioning for an extension of this week's solid rebound from the 124.40 region, or the lowest level since December 2020. The GBP/JPY cross might then aim to surpass an intermediate barrier near the 129.55 region and reclaim the key 130.00 psychological mark.

Technical levels to watch