The pound continued to be under pressure due to the expectation of a monetary policy shift. The recent weak data on the UK employment market has strengthened the market's judgment that the Bank of England may start to cut interest rates in August. As a result, the pound continued to weaken against a variety of currencies, and its performance in cross-currency trading was particularly sluggish, especially against the yen, where the decline in the exchange rate intensified.

According to market research, the UK unemployment rate rose to 4.3% in June and wage growth slowed, triggering investors' concerns about economic slowdown and the early start of a monetary easing cycle.

The yen was supported by safe-haven buying, and the decline in USD/JPY also helped push the cross market lower. As the central bank meetings of many countries approached this week, the market risk aversion sentiment intensified, prompting the yen to attract safe-haven funds, making it strong in the cross market.

At the same time, the United States and Japan reached a new trade agreement, eliminating some economic uncertainties, and the market expects that the Bank of Japan may have the conditions to raise interest rates in the future.

Nomura Securities pointed out: "The trade agreement signed between Japan and the United States has reduced the downside risk of inflation and will help the Bank of Japan to further normalize its policy, but the political situation and the recent slowdown in CPI still require vigilance."

From the technical chart, the GBP/JPY daily chart shows that the exchange rate has fallen below the short-term rising trend line support, while the MACD momentum column turns negative, and the 14-day RSI crosses the 50-axis downward, and the short-term short signal gradually becomes clear. If it continues to run below 198.00, it may fall to the next support area of 196.60 (near the low point in early July), or even close to the 100-day moving average support of 195.40.

On the upside, if there is a short-term rebound, we need to pay attention to whether the 198.90 and 199.20 areas can be effectively broken through. This area once formed the previous shock top. If it is broken through, the short-term bullish momentum will be restored, and the target may point to the 200 mark again. However, in the context of bearish fundamentals, the rebound momentum may be limited.

Editor's opinion:

The current weakness of GBP/JPY is mainly due to the resonance of fundamentals: the expectation of interest rate cuts in the UK and the risk aversion of the yen have doubled down on the performance of the pound. Although the yen may be slightly restricted in the near term due to trade optimism, changes in global risk appetite and the policy outlook of the Bank of Japan are still key variables.

Before the Bank of Japan's decision on Thursday, the market may maintain a cautious attitude and the short-term exchange rate will face greater volatility risks.