• GBP/JPY gained traction for the fourth successive day and shot to two-week tops on Wednesday.
• Hotter-than-expected UK CPI reaffirmed BoE rate hike expectations and boosted the British pound.
• The cautious market mood underpinned the safe-haven JPY and capped the upside amid Brexit woes.

The GBP/JPY cross retreated a few pips from a two-week peak touched in reaction to hotter-than-expected UK CPI print and was last seen trading with modest intraday gains, just below mid-154.00s.

The cross built on its recent bounce from over one-month lows and gained follow-through traction for the fourth successive day on Wednesday. The momentum picked up pace after the UK Office for National Statistics (ONS) reported that the headline CPI accelerated to a 4.2% YoY rate in October. This was well above market expectations for a rise to 3.9% from 3.1% previous.

Adding to this, the core inflation gauge (excluding volatile food and energy items) also surpassed consensus estimates and rose 3.4% YoY during the reported month. This comes on the back of Tuesday's mostly upbeat UK employment report and reassured an immediate rate hike by the Bank of England in December. This, in turn, was seen as a key factor that boosted the British pound.

Meanwhile, the GBP/JPY cross shot to an intraday high level of 154.73, albeit struggled to find acceptance or capitalize on the move beyond the 200-period SMA on the 4-hour chart. Worries that the UK government would trigger Article 16 of the Northern Ireland Protocol acted as a headwind for the sterling and held back bulls from placing fresh bets around the GBP/JPY cross.

Apart from this, the prevalent cautious market mood – amid persistent concerns about surging consumer prices – benefitted the Japanese yen's relative safe-haven status. This was seen as another factor that contributed to cap the upside for the GBP/JPY cross. This makes it prudent to wait for a sustained strength beyond 200-period SMA before positioning for any further gains.

Technical levels to watch