GBP/JPY Edges Higher On Strong UK Data, Softer Japan CPI Caps Yen

• GBP/JPY edges higher as upbeat UK Retail Sales and PMI data lift the Pound.

• Softer Japan inflation dampens expectations of near-term BoJ tightening.

• GBP/JPY remains largely range-bound between 207.50 and 209.50.

GBP/JPY advances on Friday, as stronger-than-expected UK economic data boosts the British Pound (GBP), while softer inflation figures from Japan weigh on the Japanese Yen (JPY). At the time of writing, the cross is hovering around 209.23, remaining confined within a little over one-week range.

UK Retail Sales surged 1.8% MoM in January, far exceeding expectations for a modest 0.2% rise and accelerating sharply from December’s 0.4% increase. On an annual basis, Retail Sales rose 4.5% from a downwardly revised 1.9% (previously 2.5%), comfortably above the 2.8% forecast.

Retail Sales ex-fuel increased 2.0% MoM in January, marking a sharp pickup from the prior month’s 0.3% gain. On an annual basis, sales climbed 5.5%, up from 2.5% in December.

Preliminary Purchasing Managers Index (PMI) data from S&P Global also surprised to the upside. The Composite PMI climbed to 53.9, marking a 22-month high, while the Manufacturing PMI rose to 52.0, its strongest reading in 18 months. The Services PMI remained firmly in expansion territory at 53.9.

The stronger Retail Sales and PMI figures contrast with softer UK employment and inflation data released earlier this week and could influence the Bank of England’s (BoE) monetary policy outlook, as firmer growth data may reduce the urgency for aggressive easing.

Markets currently expect the BoE to resume rate cuts as soon as its March meeting, with nearly two additional reductions priced in later this year.

In Japan, inflation data released earlier in the day showed price pressures easing at the start of the year. The National Consumer Price Index (CPI) rose 1.5% YoY in January, slowing from 2.1% in December.

Core measures also softened, with CPI excluding fresh food and energy easing to 2.6% from 2.9%, while CPI excluding fresh food slowed to 2.0% from 2.4%.

The softer inflation readings may temper expectations of near-term tightening by the Bank of Japan (BoJ), adding pressure on the Yen as markets reassess the pace of further rate normalization.