Sterling firm, but vulnerable if UK retail sales data disappoints

LONDON: Sterling rose against a weaker dollar on Thursday, although its rise could run out of steam if British retail sales data disappoints, painting another bleak picture for the economy.

While forecasts point to a drop in consumer spending due to unusually cold weather in March, a worse-than-expected number could revive concerns that the UK economy slipped into recession in the first quarter of the year. That will keep alive expectations of more quantitative easing by the Bank of England.

A better-than-expected number - not impossible given that surveys from the British Retail Consortium indicated good sales - would provide the pound with some support.

Sterling was up 0.2 percent on the day at $1.5260, partially recovering from Wednesday's sharp drop when it was hurt by a rise in the jobless rate. Resistance is cited at its 55-day moving average of $1.5271 with offers to sell the pound layered above $1.5300, traders said.

"Our economists are looking for more data disappointments projecting a monthly drop of 1 percent in part due to the unusually cold weather," said Citi strategist Valentin Marinov, referring to the retail sales data.

"Importantly, however, a weaker print could add to concerns that the preliminary first-quarter GDP data out on April 25 would disappoint as well. All this should keep sterling under pressure across the board."

Against the euro, sterling was flat at 85.475 pence , with the single currency well below a one-month high of 86.37 pence struck on Wednesday. The euro was hurt on Wednesday after Bundesbank chief Jens Weidmann was quoted as saying that the European Central Bank may adjust interest rates if new data warrants a cut.

"It was a pretty interesting reversal in euro/sterling that took place yesterday and we certainly expect it to drop further given the uncertainty in Europe does see investors buy the pound," said John Hardy, currency strategist at Saxo Bank.

"We would expect euro/sterling to drop towards 85 pence and lower in the near term."