GBP/JPY slides further below 195.00, away from its highest level since late July set on Friday

• GBP/JPY drifts lower for the second straight day amid modest JPY strength. 
• Bets for faster BoE rate cuts undermine the GBP and weigh on the cross.
• The BoJ uncertainty might cap the JPY and help limit losses for spot prices.

The GBP/JPY cross kicks off the new week on a weaker tone and retreats further from its highest level since late July, around the 196.00 mark touched on Friday. Spot prices, however, remain confined in a familiar range held over the past two weeks or so and currently trade around the 194.70 region, down just over 0.20% for the day.

The Japanese Yen (JPY) continues with its relative outperformance for the second straight day amid renewed intervention fears, which, in turn, is seen as a key factor weighing on the GBP/JPY cross. In fact, Japan’s top currency diplomat, Atsushi Mimura, warned against speculative trading and said on Friday that authorities are watching FX moves with a high sense of urgency. Adding to this, Japan’s Deputy Chief Cabinet Secretary Kazuhiko Aoki noted that it is important for currencies to move in a stable manner reflecting economic fundamentals.

Meanwhile, a surprise fall in the UK Consumer Price Index (CPI) to the lowest level since April 2021 and below the Bank of England’s (BoE) 2% target lifted bets for a 25 basis point (bps) interest rate cut at the November 7 meeting. Moreover, the money markets are pricing in the possibility of another BoE rate cut in December, which acts as a headwind for the British Pound (GBP) and exerts additional pressure on the GBP/JPY cross lower. That said, the uncertainty about the Bank of Japan’s (BoJ) rate-hike plans should cap the JPY and offer support to the cross. 

BoJ Governor Kazuo Ueda said on Friday that the central bank must focus on the economic impact of unstable markets and risks from overseas. This comes on top of Japanese Prime Minister Shigeru Ishiba’s surprise opposition to additional rate hikes and suggests the BoJ was in no rush to tighten its policy further ahead of the general election on October 27. Apart from this, the risk-on mood should cap the safe-haven JPY and limit losses for the GBP/JPY cross, warranting caution before placing aggressive bearish bets in the absence of any relevant macro data.