GBP/JPY falls to 192.20, a daily low following BoE Governor Bailey’s comments

• GBP/JPY saw strong selling in reaction to the dovish remarks from BoE Governor Bailey.
• Bailey said the central bank could become “a bit more activist” on interest rate cuts.
• Middle East tensions benefit from the JPY’s safe haven status and weigh on the cross.

The GBP/JPY cross continues its struggle to find support above the psychological 195.00 threshold for the second time in two weeks and is pulling back sharply from the one-week high reached early Thursday. The downward trajectory is pulling spot prices into the 192.25-192.20 area in the first half of the European session and is solely sponsored by the emergence of heavy selling around the British pound (GBP).

In an interview with The Guardian, Bank of England (BoE) Governor Andrew Bailey said there was a chance the central bank would become a little more aggressive in cutting interest rates if there was still good news on inflation. Traders increased their bets on another 25 basis point interest rate cut by the BoE at its November meeting. This in turn drags down UK gilts along with GBP and causes aggressive selling around the GBP/JPY cross.

Apart from this, a further escalation of geopolitical tensions in the Middle East benefits the relatively safe haven status of the Japanese yen (JPY) and contributes to the tone around the currency pair. Iran fired more than 200 ballistic missiles at Israel on Tuesday as the latter carried out a precision airstrike and bombarded central Beirut in Lebanon in the early hours of Thursday, raising the risk of all-out war and undermining sentiment risk.

JPY bulls, however, are refraining from placing aggressive bets amid uncertainty over future interest rate hikes by the Bank of Japan (BoJ). In fact, Japan’s new prime minister, Shigeru Ishiba, said on Wednesday that the country is not in an environment for a further rate hike. In addition, Japan’s new economy minister, Ryosei Akazawa, expects the BoJ to make careful economic assessments when raising interest rates again.

In addition, BoJ board member Asahi Noguchi said the central bank must patiently maintain loose monetary conditions and will make gradual adjustments while carefully assessing whether inflation is sustainably reaching the 2 percent target. This, in turn, calls for some caution before positioning for any further bearish moves in the GBP/JPY cross and supports the prospects for an extension of the price action within the range seen from the start of the current week.