GBP/JPY Price Forecast: Retraces from four-month high above 196.50

• GBP/JPY retraces to near 194.45 from the four-month high of 196.50 as the Japanese Yen outperforms.
• BoJ's Uchida expressed confidence in more interest rate hikes ahead.
• The UK economy is expected to have grown strongly by 0.6% in the January-March period.

The GBP/JPY pair corrects to near 194.45 during European trading hours on Wednesday from its four-month high of 196.40 posted earlier in the day. The cross retraces sharply as the Japanese Yen (JPY) strengthens across the board after comments from Bank of Japan (BoJ) Deputy Governor Shinichi Uchida indicated that hopes of further interest rate hikes are still alive despite global economic uncertainty in the wake of tariffs announced by United States (US) President Donald Trump.

Japan's underlying inflation and medium- to long-term inflation expectations are likely to temporarily stagnate. But even during that period, wages are expected to continue rising as Japan's job market is very tight, Uchida said on Tuesday, Reuters reported.

Meanwhile, the Pound Sterling (GBP) trades calmly ahead of the flash United Kingdom (UK) Q1 Gross Domestic Product (GDP) data, which will be released on Thursday. The UK economy is estimated to have expanded at a robust pace of 0.6%, compared to 0.1% growth seen in the last quarter of 2024.

On the monetary policy front, the Bank of England (BoE) is expected to reduce interest rates further as the UK labor market has cooled down. The Office for National Statistics (ONS) reported that the ILO Unemployment Rate accelerated to 4.5%, as expected, from 4.4% in the three months ending February. In the same period, the economy added 112K fresh workers, significantly lower than the prior release of 206K.

GBP/JPY struggles to extend its upside above the horizontal resistance plotted from the March 27 high of 196.00. However, the outlook of the cross is still bullish as the 20-day Exponential Moving Average (EMA) slopes higher, which trades around 192.32.

The 14-day Relative Strength Index (RSI) retraces to near 60.00 from 67.00. A fresh bullish momentum would emerge if the RSI holds above the 60.00 level.

The pair could extend its upside to near the January 7 high of 198.26 and the psychological level of 200.00 after breaking above the four-month high of 196.40.

On the flip side, a downside move by the pair below the May 6 low of 190.33 will expose it to the March 11 low of 188.80, followed by the February 7 low of 187.00.

GBP/JPY daily chart