Sterling jumps after UK retail sales' surge

LONDON: Sterling jumped against the dollar on Wednesday after data showed British retail sales unexpectedly surged in August, increasing pressure on the Bank of England to lift interest rates from record lows.
The pound rose by more than 3 percent last week after the BoE said it was likely to raise interest rates in the "coming months" if the economy and inflation pressures strengthen as expected. Policymakers from the Bank reinforced that message in subsequent comments.
Sterling jumped to as high as $1.3606 after the data, up from $1.3518 beforehand, and leaving it just a whisker away from a high of $1.3618 reached on Monday, which had been its highest since the Brexit vote.
However, it slipped back a little after a BoE agents' report showed pay growth across British companies remains subdued and investment intentions among services firms weakened further in the second quarter.
By 0834 GMT sterling was up 0.3 percent at $1.3551.
"The optimism from the retail sales was offset by the agents' report," said ING currency strategist Viraj Patel.
"And we're not really surprised that retail sales bounced back this month, and the key word here is recovery - this isn't an acceleration for the UK consumer; it's a recovery," he added.
Sterling surged on Tuesday afternoon on reports that British foreign minister Boris Johnson would resign before the weekend if his Brexit demands were not met by Prime Minister Theresa May. Markets saw his possible resignation as making the "softer" Brexit that May is pushing for - in which Britain keeps preferential access to the single market - more likely.
The pound eased back, though, after Johnson denied he could quit and May said he was "doing good work" and should not be sacked.
Traders said a speech on Friday by the prime minister on Brexit in Italy was the next major focal point for sterling, and that the pound was likely to trade sideways until the U.S. Federal Reserve publishes its latest policy statement later in the day.
"Markets are cross-eyed between the Bank of England's hawkish words and the tumult of Brexit," said Peter Rosenstreich, Swissquote analyst, in a note to clients.
"So far, the pound's post-Brexit-election plunge has supported the UK economy, yet headwinds are increasing. A rate hike might be needed, but it is unlikely as the domestic outlook is softening and real wages are falling."