GBP/JPY slides below 192.00 as JPY benefits from reviving safe-haven demand

• GBP/JPY drifts lower on Tuesday and is pressured by a combination of factors.
• Bets that the BoE might cut rates in August undermine the GBP and the cross.
• The JPY attracts some safe-haven flows and also contributes to the pair's slide.

The GBP/JPY cross extends the previous day's retracement slide from the 199.20 region and attracts some follow-through selling during the Asian session on Tuesday. Spot prices slide back below the 198.00 mark in the last hour and the fundamental backdrop backs the case for a further near-term depreciating move.

The British Pound (GBP) continues with its relative underperformance in the wake of rising bets that the Bank of England (BoE) could cut interest rates in August, bolstered by a weak UK labor market report released earlier this month. The Japanese Yen (JPY), on the other hand, attracts some safe-haven flows amid the market anxiety ahead of this week's key central bank event risks. This further contributes to the GBP/JPY pair's offered tone and validates the negative outlook.

Traders, however, might refrain from placing aggressive directional bets and opt to wait for the Bank of Japan (BoJ) monetary policy update on Thursday. Japan's trade deal with the US has removed a key downside risk for the domestic economy and suggests that conditions for the BoJ to hike interest rates further may start to fall in place. However, signs of cooling inflation in Japan and domestic political uncertainty might complicate the BoJ's policy normalization path.

Hence, investors will look for cues about the possibility of future rate hikes, which, in turn, will play a key role in influencing the near-term JPY price dynamics and provide some meaningful impetus to the GBP/JPY cross during the latter half of the week. In the meantime, the latest trade optimism could act as a headwind for the safe-haven JPY and limit losses for spot prices. The fundamental backdrop, meanwhile, suggests that any attempted recovery is likely to be sold into.