GBP/JPY rallies back closer to 151.00 mark on hawkish BoE

• GBP/JPY caught aggressive bids in reaction to a more hawkish BoE policy statement.
• The BoE indicated that a modest tightening of the policy was likely to be necessary.
• The risk-on mood undermined the JPY and remained supportive of the momentum.

The sterling strengthened across the board after the Bank of England announced its policy decision, pushing the GBP/JPY cross to three-day tops, around the 150.85 region in the last hour.

As was widely anticipated, the UK central bank left the benchmark interest rate unchanged at 0.10% and the Asset Purchase Facility steady at £895 billion at the end of the September policy meeting. In the accompanying policy statement, the BoE indicated that a modest tightening over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably.

The markets now seem to have started pricing in the prospects of an early rate hike and now see the benchmark BoE rate at 0.5% in September 2022, earlier than November 2022 before the announcement. This, in turn, provided a strong boost to the British pound and assist the GBP/JPY cross to capitalize on this week's bounce from sub-149.00 levels, or one-month lows touched on Tuesday.

On the other hand, the prevalent risk-on mood continued weighing on the safe-haven Japanese yen and further contributed to the strong bid tone surrounding the GBP/JPY cross. The combination of factors might have already set the stage for additional gains. Hence, a subsequent strength towards testing the next relevant hurdle, near the 151.30-35 region, remains a distinct possibility.

Technical levels to watch