• GBP/JPY retreated over 120 pips from the four-week high in a knee-jerk reaction to the BoE decision.
• The BoE raised rates by 25 bps and disappointed some investors anticipating a more aggressive hike.
• Hopes for diplomacy in Ukraine undermined the safe-haven JPY and extended support ahead of BoJ.

The GBP/JPY cross witnessed aggressive selling around the Bank of England announced its policy decision and dived to a fresh daily low, around the 155.45 region during the mid-European session.

The British pound weakened across the board in reaction to the BoE's decision to raise interest rates by 25 bps, which disappointed some investors expecting a more aggressive increase in borrowing costs. Moreover, the 8-1 MPC vote distribution was seen as another factor that contributed to the GBP/JPY pair's dramatic intraday turnaround from the four-week high, around the 156.70 region.

Barring the knee-jerk fall, the GBP/JPY cross lacked follow-through selling amid hopes for a diplomatic solution to end the war in Ukraine, which continued undermining the safe-haven Japanese yen. This, along with expectations that the Bank of Japan (BoJ) will stick to its accommodative policy stance at the upcoming meeting on Friday, weighed on the JPY and extended support to the GBP/JPY cross.

Nevertheless, the pair, for now, seems to have snapped four successive days of the winning streak as traders start repositioning for the BoJ event risk. Apart from this, fresh developments surrounding the Russia-Ukraine saga, will influence the broader market risk sentiment and drive demand for traditional safe-haven assets. This, in turn, should produce some trading opportunities around the GBP/JPY cross.

Technical levels to watch