GBP/JPY returns above 173.00 despite a decline in UK consumer spending

• GBP/JPY has rebounded back above 173.00 as the odds for an interest rate hike by the BoE remain upbeat.
• The BoJ is committed to continuing quantitative easing to push inflation steadily above 2%.
• UK’s consumer spending for durables has dropped as households are facing the burden of higher interest rates and stubborn inflation.

The GBP/JPY pair has shown a V-shape recovery after printing an intraday low of 172.68 in the European session. The cross witnessed a stellar buying interest as the Bank of Japan (BoJ) is committed to continuing quantitative easing to push inflation steadily above 2%.

Inflation in Japan is majorly derived from higher imported goods while less dependent on domestic demand and higher wages. The BoJ is consistently making efforts for increasing wages in order to increase domestic demand to keep inflation higher.

This week, Japan’s Gross Domestic Product (GDP) will be keenly watched. Thursday’s GDP data is expected to expand by 0.5% vs. prior expansion of 0.4% on a quarterly basis. Annualized Q1 GDP is seen steady at 1.6%.

Meanwhile, the headline came that the Bank of England (BoE) has allotted 10 million Pound Sterling in six-month Indexed Long-Term repo (ILTR) operations to match banks’ bids. Investors should note that LTRs allow market participants to borrow central bank reserves for a six-month period in exchange for less liquid assets.

In the United Kingdom, consumer spending for non-essential items has dropped as households are facing the burden of higher interest rates and stubborn inflation. Households are restricting themselves from purchasing durables as interest obligations are higher over time.

The British Retail Consortium (BRC) said spending in its members' stores increased 3.9% in annual terms last month, well above the 1.1% fall a year ago, however, sales were below the 5.2% rise in April, as reported by Reuters. However, the odds for one more interest rate hike by the Bank of England (BoE) remain resilient in order to secure the promise of halving inflation made by UK PM Rishi Sunak.