The GBP/JPY currency pair slipped lower on Friday, driven by increasing safe-haven demand as investors braced for renewed geopolitical and trade tensions ahead of the US President’s July 9 tariff deadline.
The pair has been struggling to maintain upward momentum after failing to hold above the psychologically significant 198.00 resistance level. With clarity and expertise, the Servelius team unpacks this topic in the article below.
As of the latest market action, GBP/JPY is trading just below the 10-day Simple Moving Average (SMA) at 197.61, underscoring near-term technical resistance. Simultaneously, support is being tested around the 197.00 psychological round number, and a confirmed breach could set the stage for a deeper retracement toward the 23.6% Fibonacci retracement level of the April–July uptrend, located at 195.41.
Risk-Off Sentiment Boosts the Yen
The Japanese Yen (JPY), often regarded as a traditional safe-haven currency, has seen renewed buying interest as markets grow increasingly risk-averse heading into the weekend. Investors are seeking stability amid a backdrop of uncertainty regarding US tariffs on imports, which may include Japanese goods such as technology components, automobiles, and agricultural products.
Japan’s trade relationship with the United States has come under pressure recently, particularly following Japan’s reluctance to increase US rice imports, a key sticking point in ongoing trade talks. If Washington moves ahead with punitive tariffs next week, market volatility could escalate, prompting further strength in the JPY as traders look to reduce exposure to riskier assets.
Despite the strengthening of Yen, its longer-term outlook remains complicated by the Bank of Japan’s (BoJ) ultra-loose monetary policy. Unlike other major central banks that have embraced policy tightening to combat inflation, the BoJ has maintained negative interest rates and continued quantitative easing, effectively suppressing domestic bond yields.
This monetary divergence often puts pressure on the Yen, but risk-off flows are temporarily overpowering that effect this week.
Political Pressures Weigh on the British Pound
The British Pound (GBP), on the other hand, faces its own set of challenges. While newly elected UK Prime Minister Keir Starmer has enjoyed early political momentum, internal Labour Party tensions are beginning to emerge. Disagreements over fiscal strategy, welfare policy, and proposed spending cuts are generating political noise that limits Sterling’s upside.
Investors are also concerned about ballooning public deficits, especially in the absence of a comprehensive tax plan to balance the books. These uncertainties have made traders cautious about pushing the Pound higher, particularly in the face of global risk aversion and increased geopolitical instability.
GBP/JPY at a Technical Crossroads
From a technical perspective, GBP/JPY remains in a broadly bullish structure, with price action continuing to trend above the 200-day Simple Moving Average, currently offering longer-term support at 193.55. However, the failure to decisively break and hold above 198.00 this week has triggered renewed selling pressure.
A clean break above 198.00 is still necessary to unlock the next leg higher, which could expose the recent June swing high at 198.81. Beyond this, bulls may set sights on the 200.00 psychological level, which hasn’t been tested since early 2015.
On the downside, if the pair dips below 197.00, bears could push for a test of the 195.41 Fibonacci level, a key support area marking the 23.6% retracement of the multi-month rally. Further weakness may open the door toward 193.30, aligning closely with the 200-day SMA.
Momentum and Sentiment Indicators in Focus
The Relative Strength Index (RSI) on the daily chart is hovering near 55, signaling neutral-to-mildly bullish momentum. This suggests that while the pair is not overbought, it also lacks strong directional conviction at present.
Traders are keeping a close eye on macroeconomic catalysts, including the July 9 tariff decision, any updated rhetoric from the BoJ, and developments in UK fiscal policy, as these will likely determine the next meaningful move in GBP/JPY.
Broader Market Themes Impacting GBP/JPY
- US-China trade policy remains a significant wildcard that may influence broader risk sentiment, potentially affecting cross-pairs like GBP/JPY.
- Global equity markets have turned cautious this week, which typically supports the Yen due to its negative correlation with risk assets.
- Commodity prices, particularly oil and industrial metals, have also seen choppy trading, further muddying the global inflation outlook and complicating central bank strategies.
Conclusion
In summary, GBP/JPY’s recent retreat is emblematic of shifting investor sentiment as safe-haven flows strengthen and political instability grows more visible in the UK. The technical landscape suggests consolidation for now, but next week’s US tariff developments may serve as a major inflection point.
Whether bulls can reclaim control depends largely on breaking through the 198.00–198.81 resistance zone. Until then, the path of least resistance may tilt sideways or even downward, especially if risk aversion deepens and the JPY continues to benefit from haven flows.
