European session review: GBP falls as disappointing UK's retail sales data boost expectations of BoE rate cut

GBP fell against its major counterparts, weighted down by worse-than-forecast retail sales data for December. The Office for National Statistics (ONS) reported U.K. retail sales declined 0.6% m/m in December, following a 0.8% m/m drop in November. This marked the fifth straight month of no growth. Economists had forecast a monthly gain of 0.5% m/m. The disappointing retail sales data boosted hopes that the Bank of England (BoE) may cut interest rates as soon as this month.

EUR was little changed against its major rivals after the release of the Eurozone's final inflation data. Eurostat reported that Eurozone's inflation increased to 1.3% y/y in December, as initially estimated, from 1% y/y in November. That was in line with economists' forecast.

USD held its ground against its rivals, helped by recent upbeat U.S. economic statistics. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, (DXY) rose 0.15% to 97.46. The U.S. Commerce Department reported on Thursday that retail sales rose 0.3% in December, as expected. The data for November was revised up to +0.3% from +0.2%. Meanwhile, the Federal Reserve Bank (FRB) of Philadelphia said that manufacturing activity index in the mid-Atlantic region rebounded in January to its highest level in eight months, while prospects are most bright for the last year and a half. Other data showed that the number of initial jobless claims fell more than expected last week, indicating that the U.S.labor market remained strong.

AUD rose on Friday as the Chinese economic data overnight signaled that the pressure on the world's second-biggest economy may be starting to diminish. This pushed the offshore yuan (CNH) to a six-month high against the U.S. dollar as well. The data released by the National Bureau of Statistics (NBS) showed that China's gross domestic product (GBP) grew 6.0% y/y in the fourth quarter, the same rate as seen in the third quarter and in line with expectations. Meanwhile, the country's industrial output accelerated unexpectedly to 6.9% in December from 6.2% in November. The rate was forecast to ease to 5.9%. Elsewhere, China's retail sales growth stabilized at 8% in December. Experts expected growth to slow to 7.8%. The Australian currency is often traded as a liquid proxy for the Chinese currency as its economy is heavily reliant on exports to China.