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• GBP/JPY reverses an intraday dip on Wednesday and seems poised to appreciate further.
• A softer risk tone, intervention fears underpin the JPY and prompt some intraday selling.
• Bets for more BoE rate hikes continue to benefit the GBP and lend support to the cross.

The GBP/JPY cross drops to a one-and-half-week low during the early European session on Wednesday, albeit attracts fresh buying near the 172.65 area for the second successive day. Spot prices recover a major part of the intraday losses and currently trade just below mid-173.00s, nearly unchanged for the day.

A combination of factors provides a modest lift to the Japanese Yen (JPY), which, in turn, prompts some intraday selling around the GBP/JPY cross. The prospect of Japanese authorities intervening in the markets continues to underpin the JPY, which draws additional support from a generally weaker tone around the equity markets. The global risk sentiment takes a hit in reaction to weaker Chinese data, showing that the trade surplus sank to a 13-month low in May in the wake of a surprise slump in exports and suggesting that overseas demand for Chinese goods remained weak. This poses additional headwinds for the world's second-largest economy and tempers investors’ appetite for perceived riskier assets.

The downside for the GBP/JPY cross, however, remains cushioned on the back of firming expectations that the Bank of England (BoE) will be far more aggressive in policy tightening to contain stubbornly high inflation. In fact, investors expect the UK central bank to raise interest rates again from 4.5% to 4.75% on June 22  and see a roughly 60% chance that rate will peak at 5.5% later this year. The bets were lifted by the official data, which showed that the headline UK CPI fell less than expected in April and a closely watched measure of core price surged to a 31-year high. This, in turn, favours bullish traders and supports prospects for an extension of the GBP/JPY pair's multi-week-old upward trajectory.