Sterling hit a two-month high against the euro on Thursday, after data showed British retail sales surged in October and as investors focused on the political risks facing Europe in the coming months. The numbers showed annual sales growth at its highest in 14 years, more evidence of the resilient mood among British consumers since June's vote to leave the European Union - even if demand was lifted by seasonal factors like cold weather and Halloween.
Economic data has, however, played second fiddle to politics on currency markets in recent months - the pound was hardly boosted on Wednesday by data showing Britain's jobless rate had fallen to the lowest level in 11 years, and the retail sales data gave the currency only a small boost.
Analysts say sterling will be most sensitive to developments in the Brexit process. Likewise, the euro will be most sensitive to any developments suggesting the wave of populism that brought the Brexit vote and the US election of Donald Trump is spreading into Europe and threatening to break up the euro zone. The dollar is trading at its highest in almost 14 years after Trump's victory in the presidential election, with his promises of tax cuts and big spending seen boosting growth and inflation.
"Cable (sterling/dollar) has not really gone anywhere for the last 10 days really - the focus has shifted to the dollar, for obvious reasons," said BNY Mellon FX strategist Neil Mellor. "Sterling's bobbing around... I still think there's downside further out but for the moment it seems to have found a range."
Sterling was flat at $1.2443 by 1640 GMT, having reached as high as $1.2507 after the retail sales data. Against the euro, it gained 0.4 percent to trade at 85.55 pence, its highest since mid-September. "We remain very bullish on sterling - pretty much every time data are released, they're coming in above expectations," said BNP Paribas currency strategist Clara Leonard. "The pound should continue appreciating (because) we think the Bank of England will remain on hold. They think inflation will overshoot until 2018, so they'll try to avoid further weakening the pound (by easing policy further)," she added.
The pound is trading 16 percent lower against the dollar since the June 23 vote for Brexit, although it has recovered some ground after touching three-decade lows last month. Analysts said a Financial Times report that UK finance minister Philip Hammond will have to admit to the biggest deterioration in public finances since 2011 in next week's Autumn Statement, showing a 100 billion pound bill for Brexit within five years, had not impacted sterling much.