• GBP/JPY remains under some selling pressure for the third successive day on Thursday.
• The UK political uncertainty weighs on sterling and contributes to the modest downtick.
• Speculations that Japanese authorities will intervene again keep bulls on the defensive.

The GBP/JPY cross edges lower for the third successive day on Thursday and retreats further from its highest level since February 2016 touched earlier this week. The cross, however, manages to recover a few pips from a three-day low and is currently trading around the 167.80-167.75 region.

The UK political uncertainty continues to weigh on the British pound, which, in turn, is seen as a key factor exerting some downward pressure on the GBP/JPY cross. In fact, reports indicate that lawmakers will try to oust the new-elected UK Prime Minister Liz Truss in the wake of the recent tax cut fiasco. This comes amid growing worries about a deeper economic downturn and might force the Bank of England to adopt a gradual approach towards raising interest rates despite persistently high inflation.

The Japanese yen, on the other hand, draws support from speculations that authorities might intervene again to stem any further weakness in the domestic currency. This, along with the cautious market mood, further benefits the JPY's relative safe-haven status and further contributes to the offered tone surrounding the GBP/JPY cross. That said, a big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks continues to act as a tailwind for spot prices.

The BoJ, so far, has shown no inclination to hike interest rates from ultra-low levels and remains committed to continuing with its monetary easing. Furthermore, the Japanese central bank announced emergency bond-buying worth $667 million to keep the yields on the Japanese Government Bonds (JGB) below the 0.25% cap. The mixed fundamental backdrop warrants some caution before placing aggressive directional bets, though the bias seems tilted slightly in favour of bullish traders.

Technical levels to watch