Sterling retreated from a 3-1/2-month high against the euro on Friday, but was on track for its best weekly performance against the single currency in seven months. A robust UK retail sales report for April, along with growing expectations that Britain will vote to stay in the European Union in a referendum on June 23, boosted the currency this week.
Sterling strengthened to 76.485 pence per euro on Thursday, its strongest since early February, but on Friday eased back about 0.6 percent to 77.235 pence. That still left it up more than 2 percent on the week. Worries about a possible Brexit have weighed on the pound since late last year. Trade-weighted sterling shed 11 percent between mid-November and early April, when it hit a 2 1/2-year low. Since then it has recovered over 5 percent.
This week's sharp rally kicked off after an Ipsos-MORI poll showed 55 percent of those surveyed supported staying in the EU and just 37 percent wanted to leave. Late on Thursday, a ComRes poll for the Daily Mail/ITV News gave the "Remain" camp an 11 point lead. "The pound has been supported on the back of the recent polls, suggesting a falling probability of the UK exiting the European Union," said Credit Agricole analysts in a research note. "However, in order to trigger a sustainable trend, the EU referendum may still have to pass. In the meantime the currency should stay within this year's trading range."
Against the dollar, sterling slipped 0.6 percent to $1.4520, having hit a 2-1/2-week high of $1.4663 on Thursday. "There is some position adjustment going on which is pulling sterling back a bit. But as investors price out the risk of Brexit, we will see more downside to euro/sterling, perhaps to as low as 75 pence," said John Hardy, chief currency strategist at Saxo Bank.
Sterling was also hurt a little by dovish comments from a Bank of England policymaker. Gertjan Vlieghe, a noted dove, said on Thursday that the BOE needed to provide more stimulus if growth failed to recover as forecast after the referendum. But another policymaker, Kristin Forbes, said the central bank had no concrete evidence that softer British data was all down to uncertainty around June's Brexit vote.