Sterling hits 3 1/2-month high on strong retail sales data

LONDON: Sterling soared to a 3 1/2-month high against the euro and 10-year gilt yields climbed to their highest in two weeks on Thursday, after data showed retail sales in Britain rose faster than expected in April.

Retail sales increased 1.3 percent in April from a month ago, beating forecasts of a 0.5 percent rise, and gaining 4.3 percent on an annual basis. The data may reduce the chances of a rate cut that some in the market have been pricing in.

Sterling rose 0.4 percent to a two-week high of $1.4663 and the euro slumped to 76.485 pence against the pound, a 0.4 percent loss and its lowest since early February. It was trading at 76.72 pence before the retail sales data were released.

The gains saw sterling's trade-weighted index rise to 87.9 , its highest since Feb. 5.

The pound gained on Wednesday after an Ipsos-Mori poll showed 55 percent of those surveyed supported staying in the EU and just 37 percent wanted to leave. Earlier, a YouGov poll had showed the "In" camp with a four-point lead .

"Sterling has been an outperformer in the past 48 hours as expectations are rising that Britain will remain in the EU, and the retail sales numbers have added to that gloss," said Alvin Tan, currency strategist at Societe Generale.

The retail sales numbers came during a week of mixed economic reports that showed inflation was subdued but the job market resilient. Surveys of construction, manufacturing and services at the start of the month all indicated a slowdown in the second quarter.

"The better-than-expected figures will lend support to UK markets and add to confidence that despite referendum worries consumer spending is growing," said Ana Thaker, a market economist at PhillipCapital UK, which has $28 billion in assets under management.

Short-term British interest rate futures showed investors unwinding expectations that rates would fall after the referendum. Though the Bank of England has said its next move is likely to be a rate rise, some investors had bet that a vote to leave would lead to a rate cut, to shore up the economy.

Worries about a possible Brexit have weighed on the pound since late last year, driving an 8 percent decline in the past six months on a trade-weighted basis. But since hitting a 2 1/2-year low last month, sterling has recovered by around 4 percent.