Sterling firmed against the dollar on Friday, shrugging off poor UK retail sales data as it tracked gains in the euro against the US currency and remained supported by expectations for higher UK interest rates. Official data showed retail sales fell 0.8 percent during December, much more sharply than the 0.3 percent fall forecast in a Reuters poll.
The data highlighted the fragility of the UK economic recovery, just as the government's harsh austerity measures take effect. It had been expected, however, that December's cold weather would hit retail sales, and this dimmed the negative impact on sterling, analysts said. Traders also said an earlier euro/sterling sell order by a European bank helped temper the pound's losses.
"We have seen sterling adopt a more bid tone of late, primarily due to inflation news and rate hike expectations. Retail sales disappointed massively but they were expected to be bad and can be erratic," said Richard Wiltshire, FX broker at ETX Capital. Sterling was up 0.6 percent at $1.5998, well above a low of $1.5867 after the retail sales data and helped as the euro rose to a two-month high against the US currency.
The pound hit an eight-week high of $1.6060 earlier this week. Beyond that its next target is the November 16 high of $1.6095, followed by the November 4 high of $1.6300. The pound dipped against the euro, which rose 0.2 percent to 84.87 pence after earlier rallying around 0.5 percent to 85.30 pence, its strongest since January 5, supported by breaks above its 55- and 200-day moving averages in the 84.60-84.70 region.
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