Sterling Strengthens Amid Robust UK Retail Data

Sterling rose against the dollar and euro on Friday, buoyed by strong UK retail sales data and steady inflation. The pound briefly hit highs not seen since March 2022 before settling lower, gaining 1.23% for the week. Analysts attribute the rise to stronger retail sales and a guarded BoE policy stance.

Sterling edged up against the dollar and the euro on Friday, as strong UK retail sales data provided an extra boost to the currency's upbeat trend.

The pound briefly hit $1.33405, touching March 2022 highs for the third consecutive day, but pared earlier gains to $1.32975. It gained 1.23% on the week.

Nordea Bank chief analyst Niels Christensen pointed to a strong UK retail sales report on Friday, as well as this week's inflation data and Bank of England rate decision, as reasons for the upward trend. British retail sales rose by a stronger-than-expected 1% in August and growth in July was revised up, official figures showed.

Looking ahead, data for Britain is "not that soft" and rate cut expectation has moved further out in the future, Christensen added. "That's also a reason why we see a stronger sterling, not only against the yen, but also against the dollar, and also against the euro," he said.

The euro fell 0.10% to 83.97 pence, recovering slightly from an earlier drop to its lowest level in two years. Sterling had risen on Wednesday as data showed that British inflation held steady in August but rose in the services sector, which is closely watched by the BoE, to 5.6% from 5.2% in July.

It got a further boost after a cautious BoE kept interest rates at 5.0% on Thursday, with its rate setter Catherine Mann saying earlier on Friday that she took a guarded view on the prospect of multiple rate cuts in the months ahead and stressed the need for policy to remain restrictive. Money markets priced in a 71% chance of a 25 basis points rate cut from the BoE at its next meeting in November.

The pound rose 0.90% versus the yen at 191.16, as the yen weakened after the Bank of Japan's governor steered clear of rate hike talk following the BoJ's decision to hold interest rates. "A softer yen just makes sterling firmer across the board," Christensen said.

(With inputs from agencies.)