Sterling hit a three-week high against the dollar on Thursday after data showed British retail sales edged up in August, with investors focusing on the possibility of the first US interest rate rise in almost a decade. Retail sales volumes rose 0.2 percent on the month to grow 3.7 percent on the year, compared with forecasts of 3.8 percent, Britain's Office for National Statistics said.
The numbers came a day after data showed British wages, which Bank of England policymakers keep a close eye on as they debate when to raise interest rates, rose at their fastest rate in over six years in the three months to August. "It ... seems likely that wage growth will continue to rise, which should convince BOE members it is time to begin normalising monetary policy cautiously in the first half of next year," wrote SEB currency strategists in a research note. "The latest labour market data have made us more confident that euro/sterling will trade back below the 70 pence-level towards the end of the year."
Sterling hit $1.5550 as traders arrived at their desks in New York, the highest since late August, before later easing to $1.5513, still up 0.1 percent on the day. Against the euro, the pound weakened by 0.1 percent to 72.92 pence. A rate decision is expected from the Fed at 1800 GMT, and though the consensus is that rates will be kept at their current record lows, a significant minority are betting on a rate hike.
BoE Governor Mark Carney on Wednesday stuck to his view that a decision on when to start raising interest rates will become clearer around the end of the year, as he gave an annual report to parliament. He also said China-driven market turbulence should not change the bank's thinking.
Fellow BoE policymaker colleague Kristin Forbes sounded a more urgent note, saying rates would need to rise soon, with very little slack remaining in the UK economy. "The Fed is no longer completely on its own," wrote Commerzbank FX strategists. "Therefore the losses for the pound as a result of a possible FOMC (Federal Open Market Committee) rate hike tonight should be limited. Carney also said the impact of a strong pound on inflation meant monetary policy must be "carefully calibrated". "Or in plain speak, 'we can't outdo other central banks with talk of higher rates if it means a much stronger pound'," wrote FX strategists at BNY Mellon.