LONDON: Sterling hovered near a 3-1/2 year high against the euro on Thursday, benefiting from investors viewing it as a relative safe haven from the euro zone's debt crisis, with further gains seen likely if UK retail sales data beats expectations.
The pound also hit a two-week high versus a broadly weaker dollar as gains in equity markets fuelled demand for perceived riskier currencies.
Retail sales numbers for June, due at 0830 GMT, is expected to show a rise of 0.6 percent on the month.
Some analysts said that with the recent decline in UK inflation pushing up consumer spending power, sales could beat forecasts and push sterling to fresh highs against the euro.
"There's a chance the numbers might be higher and there's a chance that might unlock the next move lower in euro/sterling," said Kit Juckes, currency strategist at Societe Generale.
The euro edged up 0.1 percent against sterling to 78.47 pence, still within sight of Wednesday's 3-1/2 year low of 78.30 pence that is expected to provide support. A break below that level would open the door to a test of the October 2010 low of 77.84 pence.
Sterling rose 0.2 percent against the dollar to $1.5695, its highest level since July 3, before running into reported offers from Asian investors around $1.57.
The pound shrugged off minutes from the Bank of England's Monetary Policy Committee on Wednesday that showed policymakers discussed a possible interest rate cut and additional asset buying at their meeting earlier this month..
Analysts said that because the committee said they were unlikely to consider such a move for several months the impact on currency markets of the hint of a cut in the premium for holding the pound was limited.
"With rate cuts not likely to be imminent we don't expect this to weigh too much on sterling for now," Lloyds analysts said in a note.
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