On Wednesday, the GBP/JPY pair was attracting attention from some intraday sellers, dropping to the 218.00 level. Nevertheless, spot quotes remain within the wider range established the day before, owing to a favorable fundamental situation.

The British pound has slightly weakened following the release of mixed inflation data in the UK. At the same time, the Japanese yen received a modest boost after a Bloomberg report indicated the Bank of Japan's representatives' intention to accelerate the rate hike process. Furthermore, rumors regarding potential intervention by Japanese authorities to support the national currency are contributing to the closing of short positions in yen, applying certain pressure on the GBP/JPY exchange rate.

The UK's Office for National Statistics (ONS) reported that in June, the annual core Consumer Price Index (CPI) rose by 2.6%, which did not meet expectations of a slight decline to 2.7% from the previous level of 2.8%. Additional data showed that the core CPI (excluding volatile food and energy prices) also rose by 2.6% year-on-year, exceeding the forecast of 2.5%. However, this data dampened hopes for a rate hike from the Bank of England and exerted pressure on the pound.

ING analysts note that "despite higher-than-expected core inflation data in the UK for June," their UK economist James Smith believes that the main trend is moving in the right direction. Smith points to easing price pressures from food and fuel and a decline in inflation in core services as evidence that domestic price pressures are becoming more moderate, which contributed to the decline of the pound sterling.

However, the immediate market reaction remains moderate, as it seems participants have already priced in a 0.25% hike from the Bank of England by September. A second rate increase is also anticipated by the end of 2026, which would bring the official level to 4.25%. Meanwhile, the BoJ's short-term rate stands at 1.0%, creating a significant interest rate gap that continues to support carry trades with the Japanese yen and acts as a tailwind for the GBP/JPY pair, cautioning bears from taking action.

Additionally, investors remain concerned about the economic risks related to the US-Iran conflict around the Strait of Hormuz, as Japan relies on oil imports through this vital waterway for more than 90%. This indicates that the path of least resistance for the Japanese yen remains downward, making it prudent to wait for a substantial continuation of sell-offs before opening positions to correct the GBP/JPY pair from levels reached last week, which represent the highest level since January 2008.

From a technical perspective, the pair found support at the 9-day EMA and the round level of 218.00. A drop below this level would support the 14-day EMA and the round level of 217.00. Below that, the 20-day SMA would still leave bulls a chance. However, as long as the oscillators remain positive, bulls have the advantage.