GBP/JPY rallies to three-week high, eyes 183.00 mark amid broad-based JPY weakness

the European session. Spot prices currently trade around the 182.80-182.85 region, summing up to a rally of over 650 pips from the lowest level since June 13 touched on Friday, and remain well supported by the heavily offered tone surrounding the Japanese Yen .

In fact, the JPY is among the worst-performing G-10 currency and is pressured by the Bank of Japan's unscheduled operation on Monday to buy ¥300 billion worth of Japanese government. This is the first such move since February 2022 and follows the recent sharp rise in the yield of benchmark 10-year JGB to a nine-year high, led by the BoJ's decision to be more flexible in its Yield Curve Control policy on Friday. It is worth recalling that the Japanese central bank said that the 0.

The initial market reaction, however, turned out to be short-lived as investors seem disappointed by theGovernor Kazuo Ueda's dovish remarks, reiterating the need to maintain monetary support. Speaking at the post-meeting press conference, Ueda added that the central bank won't hesitate to ease policy further and that more time was needed to sustainably achieve the 2% inflation target.

Investors continue to cheer the latest optimism over more stimulus measures from China, which helps offset data showing that business activity in the world's second-largest economy deteriorated further in July. Apart from this, growing acceptance that the Federal Reserve is nearing the end of its fastest interest rate hiking cycle since the 1980s remains supportive of the risk-on environment.

In fact, the UK central bank is widely expected to raise its benchmark interest rate by 25 bps on August 3, to 5.25%, or the highest since early 2008. Moreover, the markets have been pricing in two more BoE rate hikes by the end of this year as price pressures persist. This marks a big divergence in comparison to the BoJ's dovish stance and suggests that the path of least resistance for the GBP/JPY cross is to the upside. Moreover, sustained strength and acceptance above mid-182.

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