GBP/JPY drops below 168.00 on less-hawkish BOE guidance, UK Retail Sales eyed

• GBP/JPY has slipped below the 168.00 cushion as investors see BOE interest rates near peak.
• BOE’s Mann favored a 75 bps rate hike citing the further risk of higher inflation due to the tight labor market.
• UK annual Retail Sales may contract by 5.6% while monthly data will drop to 0.3%.

The GBP/JPY pair has surrendered the crucial support of 168.00 in the early Asian session amid mixed responses from Bank of England (BOE) policymakers on interest rates. The cross is following the footprints of GBP/USD, portraying a risk-off impulse that has been supported by the market participants.

The asset witnessed intense pressure after BOE Governor Andrew Bailey announced its December monetary policy. The BOE hiked its interest rates by 50 basis points (bps) to 3.5%, in line with the market consensus. What impacted the strength of the pound Sterling was the statement that more interest rate hikes may be required ahead.  This bolsters the case that the BOE interest rate is near its peak, however, the policy will remain restrictive till the achievement of price stability.

Two BOE Monetary Policy Committee (MPC) members voted for the maintenance of a status quo by the central as they believed that the current monetary policy is tight enough to contain inflationary pressures. While BOE policymaker Catherine Mann favored a 75 bps rate hike citing the further risk of higher inflation due to the tight labor market and a recent jump in earnings by the households, which may offset the recent decline in November’s inflation report.

Going forward, investors will keep an eye on United Kingdom Retail Sales data, which will release on Friday. As per the projections, the annual economic data (Nov) is expected to contract by 5.6% against a contraction of 6.1% released earlier. While the monthly data would drop to 0.3% from the former release of 0.6%.

On the Tokyo front, investors are keeping an eye on Jibun Bank PMI data. The Manufacturing PMI is expected to decline to 48 vs. 49 in the prior release. The Services PMI is seen higher at 51.1 against the prior figure of 50.3.