• GBP/JPY comes under intense selling pressure after the BoE warns of an economic downturn.
• The BoE now expects that a UK recession will begin in Q4 and last all the way through next year.
• Reviving demand for the safe-haven JPY also contributes to the intraday slide of nearly 250 pips.

The GBP/JPY cross witnesses a dramatic turnaround from the vicinity of the 164.00 mark, or a one-week high touched earlier this Thursday. Spot prices dive to the mid-161.00s. tumbling nearly 250 pips after the Bank of England announced its policy decision.

The British pound weakens across the board after the BoE warned that a UK recession will begin in the fourth quarter and last all the way through next year. Furthermore, the UK central bank said that the monetary policy is not on a pre-set path. This suggests that the BoE is more likely to slow down the pace of its tightening cycle, which, in turn, weighs heavily on sterling and prompts aggressive selling around the GBP/JPY cross.

The intraday selling pressure remains unabated during the post-meeting press conference, where BoE Governor Andrew Bailey noted that the uncertainty surrounding the outlook is exceptionally high. This overshadowed the BoE's historic move to hike benchmark interest rates by 75 bps - the most since 1995 - to 1.75%, or the highest level since late 2008. Meanwhile, reviving demand for the safe-haven Japanese yen exerted additional pressure on the GBP/JPY cross.

The latest leg down suggests that this week's recovery from over a two-month low has run out of steam and supports prospects for a further near-term depreciating move for the GBP/JPY cross. Hence, some follow-through downfall, back towards the 161.00 round-figure mark, now looks like a distinct possibility. Any attempted recovery move could now be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch