The GBP/JPY pair has seen continued selling pressure for the third consecutive day, but it has found some support just before hitting the one-month low that was established a day prior. This uptick followed the announcement of encouraging retail data from the UK. Despite this rebound, the price is poised for considerable weekly losses and is trading slightly below the key level of 213.00.
According to the UK’s Office for National Statistics (ONS), retail sales experienced a 1.2% increase in May, reversing the previous month’s adjusted decline of 1.0% and surpassing predictions of a mere 0.5% rise. Core retail sales also performed well, rising 1.2% during May compared to an upwardly adjusted decline of 0.1% in April. This data provides a bit of breathing room for the British pound (GBP), allowing the GBP/JPY pair to bounce back by nearly 50 pips from just under mid-212.00.
However, ongoing domestic political uncertainties and the Bank of England’s (BoE) reassessment of interest rate hikes might discourage aggressive investments in sterling. Greater Manchester Mayor Andy Burnham’s victory in a crucial parliamentary by-election has opened the door for his efforts to challenge British Prime Minister Keir Starmer. Burnham has indicated that this result could serve as a significant turning point for British politics, suggesting that his party’s time to alter its course is running out.
On another note, traders are tempering their expectations concerning potential interest rate hikes from central banks this week following the release of more moderate inflation figures. Additionally, a recent peace agreement between the US and Iran has alleviated fears of an energy crisis, which supports the notion that the Bank of England may maintain current interest rates in the coming months. In contrast, the Bank of Japan’s minutes from its April meeting indicate that some members advocate for quicker rate increases to prevent exceeding underlying inflation targets.
Moreover, there’s a growing belief that rising input costs for businesses will eventually translate to consumers, heightening inflation pressures and reinforcing the idea of the Bank of Japan moving towards policy normalization. Bank of Japan Deputy Governor Hino mentioned that they are likely to continue raising interest rates based on economic, price, and financial trends. This, coupled with speculation of possible interventions to bolster the Japanese yen (JPY), may help to limit any further gains in the pound/yen pair.
