The GBP/JPY pair edges lower, near 189.42, following weaker-than-expected UK retail sales figures. UK Retail Sales surprisingly dropped by 0.3% MoM in December, after a 0.1% rise in November, missing the forecasted 0.4% upswing, while annual UK Retail Sales climbed by 3.6% in December, compared to 0.1% in November. British GDP expanded by 0.1% in November after falling by 0.1% in October, slower than the expected 0.2% growth. Additionally, rising expectations of lower interest rates from the BoE could add further selling pressure on the pound.

Conversely, growing bets that the Bank of Japan (BoJ) will hike interest rates continue to support the yen. Producer prices on Thursday held steady at 3.8%, aligning with market expectations. On Friday, Japan's Finance Minister Katsunobu Kato stated that the BoJ should conduct monetary policy appropriately to achieve the 2% inflation target. In the absence of key Japanese economic figures, market sentiment around the retail sales data will drive the GBP/JPY pair.

GBP/USD Struggles Following US Retail Sales Data

The GBP/USD hovers near 1.2194 as weaker US Retail Sales and rising speculation that the Fed will implement two interest rate cuts this year softens the USD. US Retail Sales rose by 0.4% MoM in December, reaching $729.2 billion, well below the expected 0.6% rise and the previous 0.8% increase. Retail sales increased by 0.4%, excluding autos, aligning with expectations and surpassing the prior 0.2% growth. US CPI climbed 2.9% year-over-year in December, while Core CPI, excluding food and energy, grew 3.2% annually.

By contrast, weak economic data, alongside worries about the UK's fiscal situation and potential stagflation, will strengthen expectations for interest rate cuts from the Bank of England's February meeting, putting pressure on the pound. The UK's Goods Trade Balance recorded a deficit of GBP 19.311 MoM in the same period, compared to the expected GBP -17.9 billion and the previous GBP -19.327 billion. Core Retail Sales, excluding auto fuel, fell by 0.6% MoM, a departure from the prior growth of 0.1% and the anticipated 0.1% increase, while Core Retail Sales saw a 2.9% uptick, recovering from a previous decline of 0.5%. Both outcomes fell short of market predictions. The broader market sentiment will drive the GBP/USD exchange rate in today's session.

EUR/GBP buoyed ahead of Eurozone's inflation figures

EUR/GBP climbed near 0.8448 as the Euro weakened on continuing anticipation of additional rate cuts from the European Central Bank (ECB). Thursday's ECB Monetary Policy Meeting Accounts cited recent discussions among policymakers that showed agreement that changes to interest rates should be cautious and gradual, acknowledging that further reductions are still viable. The Eurozone's trade balance showed a €16.4 bn surplus in trade in November 2024, compared to €8.6 bn in October. In November 2024, exports fell 1.6% to €248.3 billion, while imports decreased 1.0% to €231.9 billion compared to November 2023.

On the other hand, the downbeat Retail Sales report added selling pressure on sterling. UK Retail Sales fell 0.3% MoM in December, following a 0.1% increase in November, missing the 0.4% estimate. Annually, sales rose 3.6%, below the expected 4.2%. Additionally, the UK's economy grew by 0.1% in November, following a 0.1% fall in October, below the expected 0.2%. Industrial and Manufacturing Production fell by 0.4% and 0.3%, respectively. In today's session, German Consumer Price Index (CPI) data will significantly influence the EUR/GBP's movements.

NZD/USD gains on Chinese economic data

NZD/USD fluctuated near 0.5599 following the worse-than-expected New Zealand manufacturing PMI. The BNZ PMI increased from 45.2 to 45.9, indicating slight improvement, yet it marked the 22nd consecutive month of contraction. However, robust Chinese economic data strengthened the China-proxy Kiwi, as China is a significant trading partner of New Zealand. China's GDP grew 5.4% YoY in Q4 2024, with a quarterly increase of 1.6%, up from 0.9% in Q3, matching expectations. December's retail sales rose by 3.7% YoY, compared to 3.0% previously, while industrial production climbed by 6.2%, up from 5.4%.

Conversely, the Greenback faced challenges as weaker US Retail Sales and ongoing inflation data heightened market expectations for two interest rate cuts by the Fed this year. US CPI rose 2.9% YoY in December, up from 2.7% in November. Monthly CPI increased by 0.4%, while Core CPI grew by 3.2% YoY. US Retail Sales rose 0.4% to $729.2 billion, below the 0.6% expected, while Retail Sales excluding Autos increased by 0.4%. Investors will closely watch US Building Permits, Housing Starts, and Industrial Production for December for fresh impetus in the NZD/USD pair.

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