The pound paired with the yen showed strong volatility. The price turbulence is really impressive: the pair was trading in the 1.500 (!) price range for a week and a half. Initially, the cross collapsed from the level of 164.50 to the level of 148.90, and then, just a few days later, it recovered to 161.50. In general, the GBP/JPY cross-pair often demonstrates increased volatility, but such large-scale price fluctuations are rarely recorded.
However, given the prevailing fundamental background, it is not necessary to talk about any anomalies. It's no joke: Japan has conducted currency interventions for the first time in 24 years, and the UK has announced a new anti-crisis plan with the largest package of tax cuts in recent generations. Such significant events provoked a "perfect storm", which made it possible for the GBP/JPY bears to simultaneously reduce the price by almost one and a half thousand points. But further events did not lead to the development of a downward trend. The downward momentum faded, and bulls turned the pair 180 degrees. In just two days (starting Wednesday), the price of the cross has increased by a thousand points. The data published on Friday on the growth of the British economy only strengthened the upward momentum. However, the upward trend is not due to statistical reporting, but rather to political events in the UK.
The anti-crisis plan of the British government, which, in fact, caused the pound's collapse, has been widely criticized - both by British and European politicians, and by representatives of international organizations. According to updated estimates, tax cuts over the next five years will cost the country's budget approximately 160 billion pounds. To this amount, it is necessary to add subsidies for freezing electricity prices, which will have to spend about 60 billion more budget funds over the next six months.
It is difficult to find positive assessments of the proposed anti-crisis plan in the public information space (unless, of course, representatives of the British government are excluded). Tax innovations were criticized by both Labour and many Conservatives. European politicians have also joined them. In particular, the German Finance Minister called the proposed plan "a large-scale and controversial experiment, when the government presses on the gas, and the British central bank simultaneously puts on the brake." The Spanish Economy Minister made more strident comments, saying that the actions of the British Ministry of Finance "will lead the UK to disaster." The French Finance Minister also criticized the proposed plan. It is noteworthy that even the International Monetary Fund, which, as a rule, voices its theses in a very diplomatic form, issued a rather sharp press release in which it indicated that the implementation of the anti-crisis plan "will lead to a further increase in inflation and a deepening of inequality." The IMF also stressed that the algorithm proposed by the Ministry of Finance is beneficial "primarily to the most affluent strata of British society." In turn, the rating agency Moody's raised its assessment of the risk of a downgrade of the UK's credit rating and lowered the forecast for the growth of the British economy next year – from 0.9% to 0.3%.
Such a wide, "unipolar" resonance of a negative nature suggested that the Liz Truss government would still revise the main provisions of its innovative plan. It is known that this weekend a conference of the Conservative Party will be held in Birmingham, whose representatives will discuss pressing issues and prospects. According to a number of British journalists, Prime Minister Liz Truss may be presented with a "yellow card" in connection with such a disastrous start. Moreover, according to rumors, the opposition wing of the Tories is planning to get the resignation of Finance Minister Kwasi Kwarteng from her.
Let me remind you, according to the British media, the prime minister may soon be declared a vote of no confidence because of the economic policy of her government. The initiators of this process were the Conservatives, who are in opposition to Truss. According to preliminary data, members of the Conservative Party have already begun collecting signatures to launch the process of declaring no confidence.
Amid such news, British journalists assume that at the upcoming conference dissatisfied with the Tory prime minister's policy will force the prime minister to dismiss the finance minister. At least such rumors are exaggerated in the press, allowing the pound to gain momentum throughout the market.
However, there is no need to rush with long positions for the GBP/JPY pair. The fate of the British finance minister is not predetermined, nor is the fate of the resonant anti-crisis plan predetermined. Despite the barrage of criticism, Truss defends the actions of her Ministry of Finance, including due to the fact that her election program was built on easing the tax burden. Therefore, the pound may again be under significant pressure on Monday, including against the yen.
From a technical point of view, the GBP/USD cross pair is located between the middle and lower lines of the Bollinger Bands indicator on the daily chart, as well as under the Kumo cloud. It is advisable to consider longs only after overcoming the middle line of the Bollinger Bands, which coincides with the lower boundary of the Kumo cloud (mark 162.30). The main bullish target in this case will be 163.70 – this is the upper boundary of the mentioned Kumo cloud.