GBP/JPY marches above 186.00 as the JPY weakens

• GBP/JPY closed near 186.50, its highest since November 2015.
• Monetary policy divergences between the BoE and BoJ are the main driver of the cross.

At the start of the week, the GBP/JPY cross leapt towards 186.50 as the GBP continued to trade strong agains the JPY, driven by hawkish bets on the Bank of Japan. Last week the UK reported hot inflation and wage figures from July, which made markets discount a terminal rate of 6% vs 5.75% at the start of the week, which made the GBP close the week as a top performer.

On the other hand, reports suggest that the Bank of Japan (BoJ) will only consider tightening as long as local wage and inflation figures meet their forecasts and dovish bets on the BoJ weaken the Yen. In addition, the fragile economic situation in China is also driving the JPY downwards, as it is one of Japan’s largest trading partners.

GBP/JPY Levels to watch

According to the daily chart analysis, short-term prospects for GBP/JPY look bullish. Both Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain positive, implying a strengthening bullish momentum. Also, the pair is above the 20,100,200-day SMAs, highlighting the continued dominance of bulls on the broader scale.

Support levels: 186.00, 185.50, 185.00.

Resistance levels: 187.00, 187.50, 188.00.

GBP/JPY Daily chart