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Sterling breaks through $1.30 as strong data eases Brexit worries
May 18, 2017 / 8:03 AM / 7 months ago

Sterling breaks through $1.30 as strong data eases Brexit worries

LONDON (Reuters) - Sterling broke through $1.30 for the first time in almost eight months on Thursday, boosted by better-than-expected British retail sales growth that eased concerns about the broader outlook for the economy this year.

An English five Pound note and coins are seen at a restaurant in the British overseas territory of Gibraltar, July 21, 2016. REUTERS/Jon Nazca

Retail sales volumes rose 2.3 percent on the month in April, beating economists’ average forecast of a 1.0 percent rise, and turning back a 1.4 percent fall in March, official data showed.

The pound climbed to as high as $1.3048, its strongest since Sept. 29. That still left it around 13 percent weaker than the levels it was trading at before last June’s Brexit referendum, but also more than 13 percent higher than a 31-year low plumbed in October during a “flash crash”.

It also climbed as much as 1 percent against the euro, trading at 85.57 pence by 1555 GMT.

Sterling has been struggling to push past the $1.30 mark since it surged a month ago on the announcement of an early parliamentary election for June 8.

“Sterling’s stars have aligned, powering it through the psychologically significant $1.30 mark for the first time since September,” said David Lamb, head of dealing at FEXCO Corporate Payments.

“The combination of the UK’s surging consumer spending and President Trump’s firestorm has decisively tilted the balance of power in favour of the pound over the dollar.”

The dollar fell to its lowest levels since Donald Trump’s election last November after Reuters reported that his campaign had 18 undisclosed meetings with Russia during the last seven months of his presidential campaign, with questions being raised over whether he could be impeached.

In Britain, weaker retail sales numbers and other indicators this year have raised the prospect of a fall off in consumer spending as wage growth trails rises in inflation due to sterling’s slide in the second half of last year.

That adds to signs from the Bank of England that it will not raise interest rates for another two years.

Many warn, however, that a two-year period of exit negotiations with the European Union will see more hits to UK growth and confidence in the pound.

According to a Reuters poll of economists, the Bank of England’s growth and wage forecasts are too optimistic and hinge on a “smooth” transition to Brexit.

“In time, we sense UK economic releases will fall over, just not yet,” Mizuho’s head of hedge fund FX sales Neil Jones said.

Editing by Toby Chopra

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