GBP/JPY jumps above 190.50 after upbeat UK Retail Sales data

GBP/JPY rises to around 190.70 in Friday’s early European session, adding 0.60% on the day.
UK Retail Sales climbed 1.7% MoM in January, stronger than expected.
Japan’s hotter CPI inflation print reaffirms BoJ rate hike bets, which might cap the downside for the JPY.

Lallalit Srijandorn FXStreet

The GBP/JPY cross rises to around 190.70 during the early European trading hours on Friday. The Pound Sterling (GBP) strengthens against the Japanese Yen (JPY) after the release of UK January Retail Sales data.

Data released by the Office for National Statistics on Friday showed that UK Retail Sales climbed 1.7% MoM in January versus a fall of 0.3% in December. This figure came in above the market consensus of a rise of 0.3%. On an annual basis, Retail Sales increased 1.0% in January, compared to a rise of 2.8% (revised from 3.6%) prior, better than the estimation of 0.6%. The GBP remains firm in an immediate reaction to the upbeat UK Retail Sales.

Japan's Finance Minister, Katsunobu Kato said early Friday that higher long-term rates can pressure Japan's fiscal situation. These remarks exert some selling pressure on the JPY and act as a tailwind for GBP/JPY. However, the hotter-than-expected Japan’s National Consumer Price Index (CPI) inflation data reinforced the case for a hawkish outlook on the Bank of Japan (BoJ) monetary policy, which might help limit the JPY’s losses.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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