Sterling rose against a broadly weaker dollar on Friday, recouping losses triggered by poor UK data the previous day, although further gains could be hampered by speculation of more asset purchases by the Bank of England. The pound climbed 0.3 percent to $1.5867, rising back above its 200-day moving average at $1.5854, a key chart indicator, and tracking a solid rise in the euro versus the dollar.
Sterling reversed losses from Thursday when it fell to a one-week low of $1.5770 after UK retail sales suffered their biggest monthly drop in nine months in February, while the dollar was also pressured by a drop in US home sales data. "There seems to be interest to buy dips in sterling at the moment, though within the confines of its recent ($1.55-$1.60) range," said Richard Wiltshire, chief FX Broker at ETX Capital.
He added a weekly close above the 200-day moving average could help the pound extend gains, although it was likely to stall ahead of $1.60. Weaker-than-forecast retail sales followed a dovish slant to the BoE minutes on Wednesday, with two policymakers unexpectedly voting to extend its quantitative easing programme further.
The pound dipped against the euro, which traded up 0.2 percent at 83.55 pence. The euro has rebounded since hitting a one-month low of 82.83 pence earlier this week but is likely to stay stuck below the 84.24 pence high hit on March 13. But some analysts said although data this week had been a set-back, it would not reverse the recent slight improvement in market sentiment towards the pound, based on a run of more resilient economic figures.
"We had a drop down yesterday (in sterling) but are now simply back towards the level we were before. We have a forecast of a slow grind higher for sterling and the sterling crosses," said Lauren Rosborough, senior currency strategist at Societe Generale.
The BoE minutes came as a disappointment to many in the market after a string of better UK data suggested the economy would avoid slipping into recession and the BoE may hold back from opting for a third round of QE later in the year.
A survey overnight also showed British consumer morale eased last month from January's five-month high as shoppers grew more worried about their jobs, serving as a reminder of the fragility of the UK economy. "The BoE was quite dovish and clearly did not close the door to further QE even though the market may want that," said Lee McDarby, head of corporate treasury at Investec Bank Plc.
"But sterling is still finishing the end of the week quite firm and if we can mange a close above $1.59 that will be fairly bullish for the pound." Quantitative easing tends to weigh on a currency as it involves flooding the economy with cash in an attempt to boost growth.
BoE policymaker Martin Weale said in a newspaper interview the economy probably showed some growth in the first three months of this year but data would "jump around" due to the Queen's Jubilee celebrations and the Olympic Games in London in the summer.