GBP/JPY Drops Most in Session as Wage Growth Cools Sharply

Traders' Opinions

Summary:

GBP/JPY tumbled nearly 0.85% to 207.50 after the UK reported its highest unemployment rate in five years (5.2%) and slowing wage growth, solidifying market bets on Bank of England rate cuts.

SELL GBPJPY

EXP

TRADING

207.800

Entry Price

200.000

210.000

207.456 -1.726 -0.83%

0.0

Pips

Flat

200.000

Exit Price

207.800

Entry Price

210.000

The British Pound is enduring a brutal sell-off against the Japanese Yen today, shedding nearly 0.85% to trade perilously close to the 207.50 handle. The catalyst? A UK labor market report that has sent shockwaves through the City of London, revealing an economy that is cooling far faster than policymakers had anticipated. This isn't just a minor correction; it feels like a seismic shift in the narrative surrounding the Bank of England’s next move.

Let’s cut straight to the numbers, and they make for grim reading. The Office for National Statistics (ONS) reported that the ILO Unemployment Rate for the three months through December surged to 5.2% . We were expecting a slight tick up, perhaps to 5.1%, but this figure marks the highest level of joblessness we have seen in five years. It’s a psychological threshold that screams economic stagnation.

Digging deeper, the quality of employment is deteriorating. The economy added a meager 52K workers during the period, a dramatic slowdown from the 82K added previously. But the real dagger for Sterling bulls is in the wage data. Average Earnings (excluding bonuses), the Bank of England’s favorite metric for assessing domestic inflation pressure, slumped to 4.2% year-on-year. While this was in line with forecasts, the devil is in the revision: last month’s figure was slashed from 4.5% to 4.4%. Including bonuses, the drop was even steeper, falling to 4.2% from 4.6%.

This is a clear signal that the UK labor market is losing its grip. For months, the BoE has been paralyzed by fears of a wage-price spiral. Those fears are now evaporating in real-time. When wage growth slows this sharply while unemployment climbs, the argument for maintaining restrictive interest rates becomes untenable.

The market is doing what it always does: pricing in the future. This data has effectively opened the door for summer rate cut speculation to intensify. If the jobs market is cracking now, and with January CPI data due tomorrow, the pressure on the BoE to pivot towards an easing cycle is becoming overwhelming. A weaker Pound is the logical consequence. Investors are selling Sterling because the yield advantage the UK once offered is about to shrink.

On the other side of this cross, the Japanese Yen is displaying a tenacity that has caught many short-sellers off guard. Just yesterday, the Yen was reeling from disappointing Q4 2025 GDP data, which showed the economy expanded by a paltry 0.1% —far below the 0.4% forecast. That should have been Yen-negative.

However, the market’s focus has pivoted. Despite the weak growth, the fact that Japan avoided a technical recession (following a -0.7% reading in Q3) offers a sliver of stability. More importantly, rising expectations that the Bank of Japan (BoJ) may still need to normalize policy—or at least defend against a completely weak currency—are providing a floor. The Yen is recovering those steep losses, turning the GBP/JPY pair into a perfect storm: a plunging Pound meeting a resurgent Yen.

Technical Analysis

From a technical perspective, GBP/JPY is now showing clear signs of structural breakdown within its previously established ascending channel on the 4-hour chart. Price has decisively rotated lower from the 214.50–215.00 region and is now pressing firmly against the lower boundary of the rising channel near 207.50–208.00, with bearish momentum accelerating into this support zone.

The prior bullish structure of higher highs and higher lows has been disrupted. The pair has printed a lower high near 213.50–214.00, followed by a sharp impulsive decline — a classic transition signal from trend continuation to potential corrective or reversal phase. The lower channel boundary, which previously acted as dynamic support, is now being tested under significantly heavier selling pressure compared to prior pullbacks.

The 207.50–208.00 area remains the immediate inflection point. However, unlike earlier tests, price action is now consolidating directly on support rather than bouncing strongly from it. This compression at the lower boundary increases the probability of a bearish channel break.

A decisive and sustained move below 207.00 would confirm a structural breakdown of the ascending channel. Such a move would likely trigger downside acceleration toward the 204.00–203.00 region, with the 200.00 psychological level as the next major downside magnet. A break beneath 200.00 would signal a broader trend reversal and open the path toward 195.00.

On the upside, bulls would need to reclaim 209.50–210.00 to neutralize immediate downside pressure. A sustained recovery above 211.50 would be required to reestablish short-term bullish structure. However, given the current lower-high formation and sustained selling momentum, upside recovery attempts are likely to face supply.

Structurally, momentum has shifted from trending to distributive, and the projection on the chart highlights the risk of a breakdown scenario unfolding. With price coiling at channel support after an impulsive decline, the technical bias now tilts bearish unless buyers step in aggressively.

TRADE RECOMMENDATION

SELL GBP/JPY

ENTRY PRICE: 207.80

STOP LOSS: 210.00

TAKE PROFIT: 200.00

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GBP/JPY Drops Most in Session as Wage Growth Cools Sharply

Technical Analysis

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