LONDON: Sterling rose to a one-week peak against the dollar and hit a day's high against the euro on Thursday after British retail sales data beat expectations.
Retail sales rose 0.7 percent in February, from a month earlier, leaving them 5.7 percent higher on the year. Economists had expected a rise of 0.4 percent on the month and an increase of 4.7 percent on the year, adding to strong growth in sales at the end of last year.
Sterling rose to $1.4995, its highest since March 19, and up 0.75 percent on the day. It was trading at $1.4965 before the data was released.
The euro dipped to a day's low of 73.565 pence, having traded at 73.75 pence beforehand. But the euro soon recovered to trade at 73.835, up 0.1 percent on the day and near a one-month high against the pound.
"These retail sales numbers are pretty good and helped sterling rise towards the $1.50 mark against the dollar," said Nawaz Ali, market analyst at Western Union. "A lot depends on U.S. data now and if we get another batch of weak data there, we could see sterling rise above $1.50."
The dollar has been struggling for the past few days with latest data on Wednesday showing spending on U.S. durable goods fell for a sixth straight month in February. That provided fresh evidence that economic growth slowed sharply early in the year, in part due to bad weather.
That came on the heels of last week's dovish steer from the Federal Reserve, which is now seen as likely to hike interest rates later rather than sooner.
Still, traders said gains in the pound are unlikely to hold if uncertainty related to a national election keeps rising. Britain votes on May 7 and the latest opinion polls point to a 'hung parliament', in which no single party can form a government on its own.
Sterling has also been hurt as investors pushed back expectations of interest rate hikes amid speculation that inflation in Britain will stay low for some time to come allowing the Bank of England to keep rates lower for longer.
"It's not clear though whether economics is dominating the pound nowadays or politics," said Marshall Gittler, head of FX strategy at IronFX Global. "Or maybe it's being swayed by comments by (Bank of England) Governor (Mark) Carney and his friends about the likely path of interest rates."
BoE Chief Economist Andy Haldane said last week the bank should be ready to cut rates further if inflation looked likely to stay below its 2 percent target. The next policy move was as likely to be a cut in rates as a hike, he said.
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