British Pound bounces off one-month low vs JPY on upbeat data; not out of the woods yet

The GBP/JPY cross attracts sellers for the third straight day on Friday, though it finds some support ahead of a one-month low set the previous day following the release of the upbeat UK data. Nevertheless, spot prices remain on track to register heavy weekly losses and currently trade just below the 213.00 round figure.

The UK Office for National Statistics (ONS) reported that Retail Sales grew 1.2% in May, reversing the previous month's revised fall of 1.0% and surpassing estimates for a reading of 0.5%. Furthermore, the core Retail Sales also beat expectations and rose by 1.2% during the reported month, compared with an upwardly revised 0.1% fall in April. The data provides some respite to the British Pound (GBP) and assists the GBP/JPY cross to rebound nearly 50 pips from levels just below mid-212.00s.

That said, lingering domestic political risks, along with reduced bets for interest rate hikes by the Bank of England (BoE), might hold back the GBP bulls from placing aggressive bets. Greater Manchester Mayor Andy Burnham won a critical parliamentary by-election in northern England, clearing the path to attempt to oust British Prime Minister Keir Starmer. Burnham said the result could be a "turning point" for British politics and told his party that this was a final chance to change direction.

Meanwhile, traders have been scaling back BoE rate hike expectations following the release of softer inflation figures this week. Adding to this, the US-Iran peace deal eased concerns about the energy shock, endorsing the view that the BoE will hold rates steady in the coming months. In contrast, Minutes of the Bank of Japan's (BoJ) April meeting published earlier today showed that some board members called for raising rates ‌more swiftly to avoid underlying inflation from overshooting.

Adding to this, expectations that higher input prices for businesses will eventually be passed on to consumers and lift inflation keep further BoJ policy normalisation firmly on the table. In fact, BoJ Deputy Governor Himino said that the central bank is likely to keep hiking rates based on economic, price, and financial trends. This, along with speculations that authorities will step in again to prop up the Japanese Yen (JPY), should contribute to capping any further recovery for the GBP/JPY cross.