Sterling touches 1-1/2-month high vs euro after UK retail sales

* Graphic: World FX rates in 2020

* Graphic: Trade-weighted sterling since Brexit vote

LONDON, Aug 21 (Reuters) - The British pound rose to 1-1/2-month high on Friday versus the euro and inched towards an eight-month high against the greenback after UK retail sales numbers for July came in much higher than expected.

Year-on-year sales rose instead of falling as in the previous month and instead of no growth projected by the economists polled by Reuters. Month-on-month numbers rose higher than expectations, though compared with June the rise wasn’t that big.

“This is supportive for sterling and given the general weakness of the U.S. dollar, further gains for cable over the short-term are possible,” said Derek Halpenny, head of research at MUFG, though adding that “there will be an obvious high level of caution in reading too much into this impressive performance.”

Sterling was last up 0.3% at 89.46 pence versus the euro , its highest since July 10. It was up 0.1% at $1.3225 versus the greenback, close to $1.3276, highest since December 2019.

The pound may be facing hurdles ahead as Brexit negotiations reveal again that Britain and the European Union are far from reaching a post-Brexit trade deal.

The latest negotiating round brought no breakthroughs this week on the key sticking points, an official with the bloc said on Friday.

On top of that, Britain’s public debt went above 2 trillion pounds ($2.65 trillion) for the first time in July as the government ramped up public spending to cope with the coronavirus pandemic and tax revenues fell.

A large pile of debt, double deficits and an unsecure relationship with its biggest trading partner could leave the UK vulnerable to investment outflows and money managers and investors look for better opportunities elsewhere. (Reporting by Olga Cotaga; Editing by Kim Coghill)