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• GBP/JPY loses ground as risk aversion increases following Israel’s attack on Iran.
• The Pound Sterling struggles as the UK economy contracted more than expected in April.
• Traders expect the BoJ to keep its benchmark rate steady at 0.5% at next week’s policy meeting.

GBP/JPY extends its losses for the second successive session, trading around 195.00 during the European hours on Friday. The currency cross depreciates as the Pound Sterling (GBP) faces challenges amid risk aversion, driven by the escalating geopolitical tensions in the Middle East.

Israel expects a missile and drone attack from Iran following Israel's preemptive attack on dozens of Iranian sites to dismantle its nuclear program, noted by Israeli Minister of Defense, Israel Katz. Kats also declared a special state of emergency in the country, per Axios. White House Secretary of State Marco Rubio noted that “Tonight, Israel took unilateral action against Iran and their top priority is protecting American forces in the region.” In response, Iran withdrew from the sixth round of talks between the United States (US) and Iran scheduled this weekend.

Additionally, the GBP/JPY cross loses ground as the British Pound faces selling pressure as the United Kingdom (UK) Office for National Statistics (ONS) reported that the economy shrank at a faster-than-expected pace in April. The UK Gross Domestic Product (GDP) declined by 0.3% month-over-month in April, faster than expectations of 0.1%. In March, the GDP growth rate was 0.2%.

The downside of the GBP/JPY cross could be restrained as the Japanese Yen (JPY) receives downward pressure as the Bank of Japan (BoJ) is expected to keep the benchmark rate steady at 0.5% at its upcoming meeting on June 17. BoJ policymakers expect slightly stronger inflation than previously anticipated, which could pave the way for future interest rate hike discussions, per Bloomberg.

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