British Pound Finds Support Despite Weak UK Retail Sales Data

• September’s UK retail sales fall more sharply than forecast, yet the British pound advances.
• A 0.4% contraction in UK retail sales compares with expectations of -0.1%.
• At 2.1% YoY in September, Japan’s national CPI excluding fresh food matches forecasts.

Following the release of September’s retail sales figures for the United Kingdom (UK), the British pound (GBP) advances towards 210.20 against the Japanese yen (JPY).

Retail sales, a key gauge of consumer spending, fell by a sharper-than-expected 0.4% month-on-month (MoM), according to the Office for National Statistics (ONS), compared with estimates of 0.1%. August’s increase was revised up from 0.5% to 0.7%.

On an annualised basis, retail sales growth moderated to 0.8%, falling short of the 1.5% forecast. The previous reading was revised upwards from 2.7% to 2.9%.

Expectations of a hawkish Bank of England (BoE) are highly likely to have supported sterling. Strong UK Consumer Price Index (CPI) figures for September, alongside robust labour market data for the three months to August, have fuelled expectations of a BoE interest rate rise.

Markets are increasingly convinced that policymakers will act at the next meeting. According to Deutsche Bank, stronger inflation combined with the earlier robust labour market figures "helped to cement investor expectations for a BoE rate hike in November,"

Attention now turns to October’s preliminary UK S&P Global Purchasing Managers’ Index (PMI) figures, due at 08:30 GMT.

In Japan, September’s national Consumer Price Index (CPI) figures showed stronger inflation. Excluding fresh food, national CPI increased by 2.1% year-on-year (YoY), matching expectations and accelerating from August’s 1.8%. That August reading was itself revised upwards from 1.7%.