GBP/JPY retreats from yearly high, holds above 200.00 ahead of UK CPI report

• GBP/JPY drifts lower on Tuesday and snaps a three-day winning streak to the YTD peak.
• BoJ rate hike bets benefit the JPY and exert some downward pressure on spot prices.
• Traders look to the UK CPI for a short-term impetus ahead of key central bank events.

The GBP/JPY cross attracts some selling during the Asian session on Tuesday and for now, seems to have snapped a four-day winning streak to its highest level since July 2024, around the 200.75 region, touched the previous day. Spot prices, however, manage to hold above the 200.00 psychological mark as traders look forward to the UK consumer inflation figures for a fresh impetus ahead of the key central bank events.

The UK Consumer Price Index (CPI) could offer critical insight into the trajectory of inflation and its wider implications on monetary policy. A stronger-than-expected CPI print could further reduce the odds for an immediate interest rate cut by the Bank of England (BoE), which is scheduled to announce its policy decision on Thursday. This, in turn, could provide a goodish lift to the British Pound (GBP) and assist the GBP/JPY cross to attract some dip-buyers at lower levels.

Ahead of the key data, a broadly firmer Japanese Yen (JPY) exerts some downward pressure on spot prices. Despite domestic political turmoil, investors seem convinced that the Bank of Japan (BoJ) will stick to its policy normalization path, which, in turn, is seen as a key factor underpinning the JPY. That said, the uncertainty over the likely timing and the pace of rate hikes by the BoJ might cap gains for the JPY and help limit deeper losses for the GBP/JPY cross.

Furthermore, the prevalent risk-on environment - as depicted by a generally positive mood around the equity markets - could offer some support to the currency pair. Hence, it will be prudent to wait for strong follow-through selling before confirming that the GBP/JPY cross has topped out in the near-term and positioning for any meaningful corrective decline.