GBP/JPY falls below 196.00, trims recent gains following poor UK Retail Sales data

• GBP/JPY pared daily gains as UK Retail Sales declined by 2.7% MoM in May, worse than the expected 0.5% drop.
• The currency cross receives support from reports suggesting an easing of the US aggression on Iran.
• The Japanese Yen struggles due to ongoing uncertainty over the timing of the BoJ’s rate hike.

GBP/JPY holds ground for the second successive day, trading around 195.90 during the Asian hours on Friday. The currency cross has trimmed its daily gains after the weaker-than-expected Retail Sales data released from the United Kingdom (UK).

The Office for National Statistics (ONS) reported that the UK Retail Sales fell 2.7% month-over-month in May, reversing April’s increase of 1.3% (revised from 1.2%). Markets expected a 0.5% drop in the reported month. Meanwhile, the monthly core Retail Sales, excluding the auto motor fuel sales, declined 2.8%, worse than the estimated decrease of 0.5%. The annual Retail Sales dropped by 1.3% in May, against April’s 5% growth, while the core Retail Sales also decreased by 1.3% against a 5.2% previous revision.

The GBP/JPY cross appreciates as the Pound Sterling (GBP) receives support, while the Japanese Yen (JPY) faces downward pressure from reports suggesting a de-escalation of the US aggression on Iran. The absence of negative developments in the Iran-Israel conflict front so far this Friday, boosting market sentiment and reviving risk appetite.

US President Donald Trump reportedly said that he will offer Iran a last chance to negotiate the end of its nuclear program. Trump noted on Thursday that he would delay his final decision on launching strikes for up to two weeks.

On Thursday, the Bank of England (BoE) announced to leave interest rates steady at 4.25%. Traders expected the BoE to keep rates unchanged, with a 7-2 majority in favor. However, three Monetary Policy Committee (MPC) members: Swati Dhingra, Dave Ramsden, and Alan Taylor have supported an interest rate cut.

Additionally, the Japanese Yen faces challenges due to ongoing uncertainty over the timing of the next Bank of Japan (BoJ) rate hike. BoJ Governor Kazuo Ueda said earlier this week that the central bank's near-term attention was on downside risks to Japan's economy, with the impact of US tariffs expected to worsen in the second half of this year. This remark suggests that the Japanese central bank was in no hurry to begin rate hikes.