Sterling briefly dipped below $2 on Friday after data showed UK retail sales growth eased in March, but quickly bounced back as figures did nothing to alter expectations for higher British interest rates. Retail sales rose 0.3 percent in March, less than the forecast for a 0.5 percent rise.
However, retail sales deflator, a gauge of retail prices, rose at its strongest rate in six months. With evidence of rising price pressures, reflected in this week's data showing inflation exceeding 3 percent, investors still expect the Bank of England to raise rates in May and probably again later this year.
"(The data) is not going to affect markets too adversely for interest rate expectations because prices and activity data suggest a need for a May rate hike," said Adrian Hughes, currency strategist at Societe Generale.
He added that data next week could also add to sentiment on interest rate hikes. "As for further policy tightening, next week we have GDP data and this will feed into that," Hughes said. At 1030 GMT, the pound was up slightly on the day at $2.0040, quickly erasing losses after the data. It hit the 26-year peak of $2.0133 hit earlier this week.
The pound was slightly higher on the day at 67.88 pence. BoE Governor Mervyn King was quoted in regional newspaper the Yorkshire Post as saying that the bank is "absolutely determined" to bring inflation back to 2 percent.