• GBP/JPY rebounds swiftly from over a three-week low touched earlier this Thursday. 
• The emergence of fresh selling around the Japanese Yen lends support to the cross.
• Reduced BoE rate cut bets contribute to the intraday recovery of nearly 100 pips.

The GBP/JPY cross stages a solid intraday recovery from over a three-week low touched during the Asian session on Thursday and climbs back above the 203.00 round-figure mark in the last hour. Spot prices currently trade with modest intraday gains, around the 203.30-203.35 region and for now, seem to have stalled the recent pullback from the highest level since August 2008.

The initial market reaction to speculation that Japanese authorities might have stepped into the FX market to boost the domestic currency fades rather quickly in the absence of any concrete evidence of intervention. This, along with rather unimpressive trade balance data from Japan and the underlying bullish sentiment across the global equity markets, undermines the Japanese Yen (JPY) and prompts some short-covering around the GBP/JPY cross.

The official report showed that Japan’s Trade Balance swung to a surplus of ¥224 billion as against the expected deficit of ¥240 billion and a ¥1.22 trillion deficit in the previous month. Additional details, however, revealed that Japan’s exports and imports grew less than expected in June as local economic activity remained subdued and overseas demand also turned sluggish. This might force the Bank of Japan (BoJ) to refrain from raising interest rates. 

The British Pound (GBP), on the other hand, is underpinned by reduced bets for an interest rate cut by the Bank of England (BoE). The expectations were lifted by the UK consumer inflation figures released on Wednesday, which rose slightly more than expected, by a 2% YoY rate in June. This comes on the back of a better-than-expected GDP growth of 0.4% in May, which continues to benefit the GBP and provides an additional lift to the GBP/JPY cross.

It, however, remains to be seen if bulls can capitalize on the intraday move up amid speculations that Japanese authorities might intervene to prop up the JPY. Market participants might also prefer to wait for the release of the UK employment figures before placing directional bets. Hence, a strong follow-through buying is needed to support prospects for additional gains.