• GBP/JPY witnessed heavy follow-through selling for the second successive day on Monday.
• Friday’s dismal UK macro data continued weighing on the British pound and exerted pressure.
• The global flight to safety benefitted the JPY and further contributed to the intraday selling bias.

The GBP/JPY cross dropped to a near two-week low during the early European session, though managed to find some support and recover a few pips from the 163.00 round-figure mark. The cross was last seen trading around mid-163.00s, still down over 0.85% for the day.

The cross extended last week's sharp retracement slide from the 168.40-168.45 region, or the highest level since February 2016 and witnessed heavy selling for the second successive day on Monday. The British pound was weighed down by the recent disappointing domestic data, which indicated that the UK economy is under stress from the soaring cost of living.

In fact, the Office for National Statistics reported on Friday that UK Retail Sales volumes plunged 1.4% MoM in March and suggested that the expected consumption drag from high inflation might have arrived already. Adding to this, the flash PMI pointed to the biggest loss of momentum for service sector activity since Omicron hit businesses at the end of last year.

On the other hand, the prevalent risk-off mood drove haven flows towards the Japanese yen and also contributed to the heavily offered tone surrounding the GBP/JPY cross. The prospects for rapid interest rate hikes in the US, along with concerns about slowing global growth, weighed on investors' sentiment and boosted demand for traditional safe-haven assets.

Adding to this, speculation that officials were uncomfortable and would respond to the Japanese yen's recent slump supports prospects for additional gains. That said, the Bank of Japan's commitment to defend the 0.25% yield cap might keep a lid on any meaningful gains for the JPY. This, in turn, could help limit losses for the GBP/JPY cross, at least for the time being.

Technical levels to watch