Sterling rebounded from a 1-1/2 month low against the euro on Thursday after unexpectedly stronger UK retail sales figures re-opened debate on whether the Bank of England will raise interest rates further next year.
Retail sales jumped 0.9 percent in October, three times analysts' expectations, recovering from September's 0.4 percent drop and suggesting consumer resilience in the face of higher interest rates.
Traders said the data revived talk of possible inflation-busting monetary tightening beyond this month's 25 basis point Bank of England rate rise to 5.0 percent. "The data put a spanner in the works for no further MPC (Monetary Policy Committee) rate hikes. It will raise the debate (on) further rate increases in the UK for early next year," said Neil Jones, director of FX sales at Mizuho Corporate Bank.
By 1524 GMT, sterling was steady on the day at $1.8899, but still more than 30 ticks above levels seen just before the data. It bounced from earlier 1-1/2 month lows against the euro to 67.79 pence.
The retail data came on the heels of firmer-than-expected UK housing figures overnight, but some analysts stuck to a trajectory of no further rate hikes for some time.
"The limited reaction by the sterling today ... is a reflection of the fact that no one expects the UK retail sales data to alter the interest rate expectation so much," Bank of New York currency strategist Neil Mellor said. A Reuters poll of economists taken after this week's Bank of England inflation report showed UK interest rates are likely to stay on hold throughout next year after policymakers pared back their inflation forecasts.