Pound hits 5-month high vs dollar

A pile of one pound coins is seen, in central London June 17, 2008.

LONDON (Reuters) - Sterling hit a five-month high against the dollar on Wednesday, helped by optimism about the outlook for the British economy after a run of strong official data.

Investors were awaiting testimony from Bank of England policymakers to a government committee later in the day to see if their view of the economy will reflect signs of ongoing recovery.

Figures from the Confederation of British Industry on Tuesday showed UK retail sales rose at their fastest pace in three years in July. Growth figures last week showed the economy grew twice as fast as expected in the second quarter.

The dollar by contrast has suffered broadly on signs the U.S. economic recovery is losing steam. The pound rose as high as $1.5627 before steadying to trade at $1.5589 at 8:45 a.m.

"U.S. data has almost always surprised to the downside, while UK data has almost always surprised to the upside ... The UK GDP data and the CBI trends were very strong, and the market was caught by surprise," said Elsa Lignos, currency strategist at RBS.

"As long as UK data remains strong, there's no reason to look for sterling underperformance."

Given the bullish mood, traders brushed off forecasts from the National Institute for Economic and Social Research on Wednesday that warned the economic recovery would be slower than the government believes.

Support for sterling was seen around the $1.5555 area, the 200-day moving average which the pound managed to break through and close above on Tuesday for the first time since January.

That level also marked the 50 percent retracement of sterling's peak-to-trough move between November 2009 and May.

Resistance was next seen at $1.5636, the 50 percent retracement of the move down from the August 2009 high to the May low from this year.

Despite the pound's gains against the dollar, it slipped against a broadly firmer euro, which rose 0.2 percent on the day to 83.50 pence.

Bank of England Governor Mervyn King and other policy board members will answer questions from the UK's Treasury Select Committee on monetary policy and financial stability beginning at 9:45 a.m.

Other speakers will include Andrew Sentance, who has been the lone supporter for a rise in UK interest rates from a record low 0.5 percent at the central bank's past two policy meetings.

(Reporting by Naomi Tajitsu, editing by Patrick Graham)