Sterling rose to a one-week high against the dollar on Friday after an unexpected rise in January retail sales added to signs of an improving UK economy, wrongfooting investors who had geared up for a weak number. Retail sales jumped 0.9 percent on the month, confounding economists' forecasts for a 0.4 percent decline. It was the latest data to fuel hopes the UK can avoid a recession, following a string of strong business surveys and some stabilisation in the labour market.
That dampened expectations of more monetary stimulus from the Bank of England and set sterling on the path for weekly gains. The pound rose to a session high of $1.5863 after the data, within sight of its February peak of $1.5929. It ended marginally higher on the day at $1.5810.
Many expect the rally to run out of steam ahead of strong resistance around $1.5917, the 200-day moving average which the pound has failed to break above since October. Traders cited decent offers around $1.5870 which would check gains while near- term support was at its 100-day moving average of $1.5685.
"While we do not expect the pace to be sustained, the UK retail sales data does add to the overall picture that shows the economy is improving and more QE from the BOE will not be required," said Raghav Subbarao, currency strategist at Barcaps. As quantitative easing involves the central bank flooding the market with pounds, it is usually negative for the currency. Still, an improving economic outlook is likely to support the pound and help it retain gains against the euro, analysts said. The common currency has lost 0.3 percent against the pound so far this year and was last flat on the day at 83.16 pence.
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