The pound traded at 81.30 pence per euro, recovering from a 7-1/2 month low of 81.68 struck on Wednesday after stronger than expected German Ifo data helped lift the shared currency.
UK retail data due at 0930 GMT is expected to show sales rose by 0.3 percent from October after a fall of 0.8 percent the previous month, with some expecting a stronger number that would likely lift the pound.
Traders cited Asian sovereign investor demand for the pound, helping it against the dollar. It was last trading at $1.6270, not far from a 3-1/2 month high of $1.6310 it hit on Wednesday. A move above that would take it to its highest level since late August 2011.
"The expectation in retail sales is for small increase... and the rally could remain intact up to $1.63," said Christopher Beauchamp, market analyst at IG Markets.
But the UK economy is likely to remain stagnant in the near term, minutes from the Bank of England's Monetary Policy Committee forecast on Wednesday, with inflation probably exceeding 2 percent in the next year or so.
"The market expects there may be more QE from the Bank of England as we know they want a weaker pound," said Chris Turner, head of FX strategy at ING.
"(But) the big story has been the dollar generally weaker as the Federal Reserve continues to ease in the first quarter next year, and that is helping sterling."
Center>Copyright Reuters, 2012