GBP/JPY plummets to one-week low, around mid-161.00s on BoE’s dovish outlook

• GBP/JPY came under intense selling pressure after the BoE announced its policy decision.
• The BoE raised interest rates for the fourth straight time to the highest level since 2008.
• The split MPC and a dovish outlook turned out to be a key factors that weighed on sterling.

The British pound weakened across the board after the Bank of England announced its policy decision and dragged the GBP/JPY cross to a one-week low, around mid-161.00s in the last hour.

As was expected, the UK central bank raised interest rates for the fourth time since December and the policy statement suggested that some degree of further tightening may still be appropriate in the coming months. That said, two MPC members decided to back away from the guidance that more hikes will be needed.

Adding to this, the BoE warned that the UK economy will slide into recession later this year and the annual GDP is expected to shrink by 0.25%. The split MPC, along with the dovish outlook, suggests that the rate hike cycle could be nearing a pause. This, in turn, was seen as a key factor that weighed on sterling.

On the other hand, a generally positive tone around the equity markets undermined demand for the safe-haven Japanese yen, which was further pressured by a more dovish stance adopted by the Bank of Japan. This, in turn, could help limit losses for the GBP/JPY pair as traders now await the post-meeting BoE press conference.

Technical levels to watch