Home ForexForecasts GBP/JPY – Hits highs as UK retail sales plunge in December

GBP/JPY – Hits highs as UK retail sales plunge in December

by SuperiorInvest
  • A poor December for UK retailers
  • Is weaker demand a good thing for the Bank of England?
  • GBP/JPY moves away from eight-year highs

UK retail sales fell sharply in December as consumers tightened their pockets during what is normally a hugely important time of year for retailers.

Any sense of optimism about rising sales in November was short-lived, and last month’s sales decline was as widespread as it was steep. Everyone from food retailers to department stores saw a sharp decline in sales as consumers spent less on gifts and, as a result, food during the holiday season.

While real household incomes are rising once again, the last two years have clearly taken a significant toll and it would appear that many are still not feeling better as a result of inflation falling below wage growth.

Some of that may be psychological after two years of seeing bills and prices rise so much compared to income, but there will also be many whose income is still being squeezed or who have savings reserves that need to rebuild and pay down debt.

Then there is the evidence we continue to see after lockdowns that people are more inclined to spend on experiences than on goods that may have lasted longer than expected.

In any case, the question that the Bank of England authorities will ask is what all this means for the economy and the inflationary environment. While problematic for retailers, lower demand could help the central bank in its mission to get inflation back to 2% and, as a result, cut interest rates sooner than it would currently admit.

GBP/JPY retreats from multi-year highs

So far this year, they have performed very well, having recovered all the losses suffered in December.

GBP/JPY-Daily Chart

Source – OANDA

The pair hit an eight-year high early in the session before retail sales data took the wind out of it. For the past six months it has been well within the range between 178 and 188 and may remain that way after today’s numbers. But before them, it seemed to be gaining momentum at just the right time. It will be interesting to see if the pair reaches those highs again once the dust settles.

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