• GBP/JPY witnessed fresh selling on Tuesday and dropped to the lowest level since October 4.
• The risk-off impulse underpinned the safe-haven JPY and exerted heavy pressure on the cross.
• Weaker USD benefitted the GBP and helped limit losses; Brexit woes still favour bearish traders.

The GBP/JPY cross trimmed a part of its intraday losses to the lowest level since October 4 and was last seen trading around the 150.80-85 region, still down 0.20% for the day.

The cross struggled to capitalize on its modest intraday gains, instead met with a fresh supply near the 151.60-65 area amid the emergence of fresh buying around the safe-haven Japanese yen. Investors now seem worried about the potential economic fallout from the spread of a new vaccine-resistant variant of the coronavirus. This, in turn, triggered a fresh wave of the global risk-aversion trade, which was evident from a selloff in the equity markets.

The already weaker market sentiment deteriorated further after Moderna’s Chief Executive Stéphane Bancel predicted that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19. This, in turn, boosted demand for traditional safe-haven assets and dragged the GBP/JPY cross to an intraday low level of 150.42. However, a modest pickup in demand for the British pound helped limit any further losses.

The sterling drew some support from the heavily offered tone surrounding the US dollar, which was weighed down by a steep decline in the US Treasury bond yields. However, the UK-EU impasse over the Northern Ireland Protocol, along with the worsening row over the post-Brexit fishing rights between France and Britain acted as a headwind for the GBP. This, in turn, kept a lid on any meaningful recovery for the GBP/JPY cross.

Meanwhile, the pair's inability to gain traction favours bearish traders and supports prospects for an extension of the recent pullback from over five-year high touched in October. Hence, any recovery back above the 151.00 mark might be seen as a selling opportunity and runs the risk of fizzling out rather quickly. In the absence of relevant market moving economic releases, the GBP/JPY cross remains at the mercy of developments surrounding the coronavirus saga.

Technical levels to watch