The GBP/USD pair is fluctuating within a limited range, hovering around the 1.2700 mark

As the new week unfolds, the GBP/USD pair is navigating within a tight range, lingering around the 1.2700 mark. This limited fluctuation indicates a lack of significant momentum for the currency pair, which could be indicative of market participants’ cautious approach in the face of uncertain market conditions.

Simultaneously, the GBP/JPY cross is displaying an impressive performance, enticing fresh buyers and making steady progress towards its highest point since December 2015. The pair is currently trading within the region of 183.70-183.65, marking a daily increase of over 0.20%. The pair seems ready to extend the strong upward trend it has exhibited over the previous quarter.

This positive trajectory can be partially attributed to the Japanese Yen’s (JPY) relative underperformance. The Bank of Japan’s (BoJ) dovish stance has triggered a fresh wave of JPY selling. Market players appear convinced that BoJ’s negative interest rate policy will stay in place until at least next year. Further supporting this sentiment, BoJ Governor Kazuo Ueda recently dismissed the possibility of any immediate changes to the ultra-loose monetary policy settings and indicated no plans to adjust the yield curve control measures.

In contrast, Bank of England’s (BoE) Governor, Andrew Bailey, suggested last week that interest rates might remain high for a longer period than traders currently anticipate. This outlook, combined with a generally positive sentiment surrounding equity markets, has further weakened the safe-haven JPY, providing additional support to the GBP/JPY cross.

However, rising concerns about the economic challenges resulting from rapidly increasing borrowing costs could restrict any further appreciation, especially amid fears of intervention by Japanese authorities. The potential for a recession in the British economy has emerged as a significant worry, particularly following an unexpected 50 basis points rate hike by the BoE in June. These factors might discourage traders from placing aggressive bullish bets on the British Pound, thereby limiting gains for the GBP/JPY cross due to overbought technical indicators on the daily chart.

Market participants are now keenly awaiting the release of the final UK Manufacturing PMI data, which could provide a fresh impetus. Despite these potential obstacles, the fundamental backdrop still seems to favor the bulls, thanks to the supportive factors mentioned earlier. As such, the GBP/JPY cross continues to flirt with multi-year highs amid ongoing JPY selling.