GBP/JPY falls from multi-year peak but is still highly bid at mid-156.00s

GBP/JPY saw strong follow-through on Tuesday, and rose to a new multi-year high.

GBP/JPY falls from multi-year peak but is still highly bid at mid-156.00s

The BoJ continued to support the JPY with its ultra-dovish stance.

The USD was stronger than sterling, which capped the upside in extremely overbought circumstances.

GBP/JPY crossed lost some of its intraday gains that reached the multi-year peak, and fell to mid-166.00s in the early European session.

The extraordinary fall in the Japanese currency yen continued through Tuesday's first half of trading. This was despite expectations that the Bank of Japan would maintain its loose policy stance. The BoJ repeatedly stated that it is ready to use powerful tools in order to prevent long-term interest rates rising too high. To protect the 0.25% yield limit, it is worth noting that last month the Japanese central bank offered to purchase unlimited 10-year Japanese government bonds. This was seen by many as a key factor in allowing the GBP/JPY exchange to continue its bullish trend and gain momentum for Tuesday's third consecutive day.

Spot prices rose to their highest level since February 2016 but remained below the 167.00-round-figure mark. The US dollar continued to rise due to expectations for further Fed rate hikes. This in turn put downward pressure on British pound, which kept any gains for GBP/JPY under control. In the face of extremely overbought market conditions and missing relevant market moving economic announcements, traders were reluctant to make new bullish bets. However, the bias is still strongly in favor of bulls. This suggests that any significant pullback may still be considered a buying opportunity, and more likely to stay limited.

Technically, the overnight sustained movement above the previous YTD high around the 164.65 area adds credence the near-term positive outlook. A little more follow-through buying above the 167.00 mark would reaffirm the bullish bias, and set the stage to a further appreciation for the GBP/JPY crossing.