A decision by the Bank of England (BoE) in November to leave rates unchanged sent the pair spiraling, only to be made worse by the discovery on the Omicron variant. Get your market update from RichardSnowFX here:
involves borrowing a low-yielding currency in order to buy a higher yielding currency in an attempt to benefit from the interest rate differential. This is also known as ‘’ and forms an integral part of a carry trade strategy. Traders gravitate towards this strategy in the hope of collecting daily interest payments over and above any currency appreciation from the actual trade.
The rate hike was agreed during the Bank of England’s December meeting but was highly anticipated the month before – seen by rising implied probability of a hike in UK money markets at the time. After the BoE decided to leave the interest rate unchanged the GBP/JPY pair corrected immediately by dropping towards the 153 level.
Considering the rather fast bullish move, another retracement should not be discounted. Nearest support comes in at 154.75 while a deeper retracement could even reach 153.50.For reference, the monthly chart helps to view current price action within the context of the pairs historical range. Over the near term, the pair may seem like there is little more room to run but after zooming out it is clear to see that the Pound had traded much higher when trading against the Yen.
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