GBP/JPY Price Analysis: Bulls march towards fresh cycle highs above 186.00

• GBP/JPY rose to a daily high near 186.20, displaying nearly 0.70% gains.
• GBP traded strongly against most of its rivals following hot inflation figures from the UK in July.
• The extreme dovish position of the BoJ leaves the JPY vulnerable.

In Wednesday's session, the GBP/JPY advanced to new cycle highs, near 186.20, mainly driven by the GBP’s strengths. The UK revealed higher-than-expected Consumer Price Index figures from July, which boosted hawkish bets on the Bank of England (BoE) and British yields, making the Pound gain interest. On the other hand, the Bank of Japan (BoJ) diverges against its peers, making the JPY weaker.

Investors digest UK’s CPI and now foresee an additional 75 bps of tightening

The British Consumer Price Index (CPI) declined to 6.8% YoY in July, as expected from its previous 7.9%. In addition, the Core CPI slightly accelerated to 6.9% YoY in the same month, above the expected 6.8% from its prior 6.9%. The Bank of England (BoE) tightening expectations continue to rise as a reaction. Instead of discounting a 5.75% rate at the start of the week, investors foresee a terminal rate of 6%, meaning an additional 75 basis points (bps) to the base rate of 5.25% for this cycle. In that sense, the GBP got a boost and traded strongly against most of its rivals.

GBP/JPY Levels to watch

From a technical standpoint, the GBP/JPY maintains a bullish outlook for the short term, as observed on the daily chart. The Relative Strength Index (RSI) is comfortably positioned in the positive territory above its midline. It has a northward slope, complemented by a positive signal from the Moving Average Convergence Divergence (MACD), showing green bars, signalling a growing bullish momentum. Also, the pair is above the 20-, 100-, and 200-day SMAs, implying that the bulls retain control on a broader scale.

Support levels: 184.00, 183.00, 182.15 (20-day SMA)

Resistance levels: 186.50, 187.00, 188.00.

GBP/JPY Daily chart