Sterling rallied against the dollar on Thursday after strong UK retail sales data suggested that the economy is improving, while eurozone figures boosted demand for riskier currencies. The dollar suffered broadly after Federal Reserve Chairman Ben Bernanke on Wednesday said the US economy faced an "unusually uncertain" outlook.
But sterling fell versus the euro, which gained as a jump in a flash reading of eurozone purchasing managers' sentiment stoked optimism that the eurozone had begun the third quarter on a stronger note than expected. "Sterling was riding on the coattails of the strong eurozone data, and then the punchy retail sales number led to a tailwind higher in the pound versus the dollar," said Paul Mackel, director of currency strategy at HSBC.
By 1509 GMT, sterling rose 0.6 percent to $1.5265, recovering from a one-week low of $1.5125 hit on Wednesday. The pound pushed higher versus the dollar after data showed that UK retail sales received a boost from the World Cup in June as strong sales of electrical goods drove a faster-than-expected 0.7 percent monthly rise.
The pound got a boost in early European hours as bids from an Asian account emerged around $1.5180, but resistance was seen near a three-month high of $1.5473 hit on July 15. "Cable (sterling/dollar) is certainly not overbought but bullish pressure has decreased considerably. Futures volume is less than half that of the peak, when prices were dropping in May and June," Mizuho Corporate Bank technical analyst Nicole Elliott wrote in a note.
The euro rallied 0.6 percent to 84.62 pence, capitalising on a jump in a flash reading of eurozone services PMI to 56.0 in July from 55.5 in June, which easily exceeded expectations for a 55.0 reading. Trade-weighted sterling was at 80.4, slightly lower from Wednesday. Minutes from the BoE's latest policy-setting meeting released on Wednesday showed policymakers discussed further easing as well as tightening. They voted 7-1 in favour of keeping interest rates at a record low 0.5 percent, with Andrew Sentance again voting for a 25 basis-point rate rise.