GBP/JPY sellers poke 163.00 on UK’s political jitters, downbeat yields ahead of BOE’s Bailey

• GBP/JPY extends the week-start pullback amid risk-aversion.
• UK’s political leaders step forward for President’s chair after Boris Johnson’s departure.
• Treasury yields remain pressured, portray recession fears as inflation expectations soar.
• The second round of BOE Governor Bailey, risk catalysts will be important to watch for fresh impulse.

GBP/JPY holds lower ground near the intraday bottom of 162.90 heading into Tuesday’s London open. In doing so, the cross-currency pair bears the burden of the risk-aversion wave and the UK’s political crisis, not to forget the concerns surrounding the British economic slowdown.

That said, the US Treasury yields flash recession fears as yield curves of the 10-year and 2-year Treasury bonds stay inverted, in favor of short-term maturity. Behind the move could be the record US inflation expectations, per the NY Fed’s survey of one-year-ahead consumer inflation expectations. Additionally, fears of China’s nationwide covid lockdowns in China, after fresh activity restrictions on Henan Province’s Wugang, also exert downside pressure on the market sentiment and the GBP/JPY prices.

At home, multiple key British diplomats ranging from ex-Chancellor Rishi Sunak to Foreign Secretary Liz Truss, not to forget present UK Finance Minister Nadhim Zahawi, are in the race to become the British President after sacking Boris Johnson. While Brexit is the key aspect to favor the candidature, tax cuts are being heard as the promise to win the favor.

Elsewhere, British shoppers cut back on spending for the third month in a row and sales volumes fell by the most since they were hit hard by the COVID-19 pandemic as surging inflation squeezed the economy, an industry survey showed on Tuesday per Reuters.

It’s worth mentioning that Bank of England (BOE) Governor Andrew Bailey said, per Reuters, "UK is facing a very big real income shock." The BOE Boss is up for the second round of the testimony on Tuesday and can propel the GBP/JPY moves.

Even so, the BOE’s hawkish bias contrasts with the Bank of Japan’s (BOJ) easy money policies to hint at the central bank divergence and keep the pair buyers hopeful. However, political and Brexit fears in the UK trigger a short-term pullback.

Technical analysis

GBP/JPY reverses from a three-week-old resistance line, at 163.60 by the press time, which in turn precedes the 21-DMA level surrounding 164.50 to restrict the short-term pair’s the upside. That said, bears need validation from the 100-DMA, close to 161.10 at the latest, to retake control.