GBP/JPY Returns Above 173.00 Despite A Decline In UK Consumer Spending

The GBP/JPY pair has shown a V-shape recovery after printing an intraday low of 172.68 in the European session. The cross witnessed a stellar buying interest as the Bank of Japan (BoJ) is committed to continuing quantitative easing to push inflation steadily above 2%.

Inflation in Japan is majorly derived from higher imported goods while less dependent on domestic demand and higher wages. The BoJ is consistently making efforts to increase wages to increase domestic demand and keep inflation higher.

Japan’s Gross Domestic Product (GDP) will be keenly watched this week. Thursday’s GDP data is expected to expand by 0.5% vs. prior expansion of 0.4% quarterly. Annualized Q1 GDP is seen steady at 1.6%.

Meanwhile, the headline was that the Bank of England (BoE) allotted 10 million Pound Sterling in six-month Indexed Long-Term repo (ILTR) operations to match banks’ bids. Investors should note that LTRs allow market participants to borrow central bank reserves for six months in exchange for less liquid assets.

In the United Kingdom, consumer spending for non-essential items has dropped as households face higher interest rates and stubborn inflation. Households are restricting themselves from purchasing durables as interest obligations increase over time.

The British Retail Consortium (BRC) said spending in its members’ stores increased 3.9% in annual terms last month, well above the 1.1% fall a year ago. However, sales were below the 5.2% rise in April, as reported by Reuters. However, the odds for one more interest rate hike by the Bank of England (BoE) remain resilient to secure the promise of halving inflation made by UK PM Rishi Sunak.

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