The GBP/JPY currency pair has paused around the 203.00 level after slipping from over 205.00. In October, the Pound rose more than 2% against the Yen. This week has limited data from Japan, but the UK job figures coming out on Tuesday are crucial. Traders expect the unemployment rate to hold steady at 4.7%. The Bank of England is likely to lower rates even more to manage an uneven economy.

Market Momentum and Key Levels

The momentum of GBP/JPY has changed recently. It bounced back from 197.00 after dropping below the 50-day EMA in late September. After this, it reclaimed the 50-day EMA at 199.85 and moved toward 205.00 before pausing. The price is currently staying above this important level. As long as it stays above the 50-day EMA, buyers are still active. Traders are eager to see if GBP/JPY can break past the resistance at 205.00, potentially reaching summer highs. However, if it falls below 199.50, it might signal weakening momentum. The Pound Sterling is the world’s oldest currency and is widely traded on the FX market. Issued by the Bank of England, its value is influenced by indicators like GDP and trade balance. A strong economy boosts the Pound’s value, while a weak trade balance hurts it. Currently, the GBP/JPY pair is pausing its upward trend around the 203.00 level. The market is waiting for the important UK labor data to give clearer direction, as a disappointing report could undermine the pair’s recent strength.

Bank of England Policy and Economic Outlook

The Bank of England has cut interest rates three times in 2025 in reaction to a slowing economy. Unemployment in the UK has increased from about 4.2% in early 2024 to the expected 4.7% now, which supports the central bank’s moves. This ongoing dovish stance from the BoE likely places a ceiling on the Pound’s potential. Despite challenges in the UK economy, GBP/JPY remains strong due to the large interest rate gap between the two currencies. With the BoE rate at 4.25% and the Bank of Japan’s near 0.1%, the approximately 4.15% yield difference makes holding Pounds against the Yen very appealing. This carry trade is primarily driving GBP/JPY upward. For those trading derivatives, this situation offers an opportunity to use options for risk management around today’s data release. Buying call options with a strike price above 205.00 could yield profits from a continued rally while minimizing downside risk if the labor numbers are weak. On the other hand, purchasing put options might serve as a hedge to protect existing long positions from a sudden drop. In the weeks ahead, we should pay attention to how the bullish technical trend interacts with the bearish fundamentals of the UK economy. A strong break above 205.00 could indicate further upward movement, fueled by the carry trade. Conversely, closing below 199.50 would suggest that concerns about the UK economy are starting to outweigh the attraction of the yield difference. Create your live VT Markets account and start trading now.

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