The euro zone's currency received a boost after survey data showed that the bloc's economy unexpectedly gathered pace in April. Survey data showed that Britain's economy also fared well in April, although it was overshadowed by the retail figures. "As far as sterling is concerned, you’ve got high inflation, expectations of a higher peak in rates from the Bank of England and that has supported sterling, but you definitely have that downward pressure," said Fiona Cincotta, market analyst at City Index. "What if the consumer can’t hold up? Those retail sales support that rather depressing outlook." Data earlier this week showed that British inflation unexpectedly remained in double figures in March, at 10.1% year-on-year.
As a result, traders expect more interest rate hikes from the Bank of England. Rates are now seen rising to around 4.9% by September, from 4.25% currently, according to pricing in derivatives markets. Yet the influence of higher rate expectations on the pound has been negligible this week, as economic concerns and dollar strength have weighed on the currency. The dollar index , which measures the currency against six others, was up 0.16% to 101.94 on Friday and on track for the first weekly gain since February. Some expect higher interest rates in Britain to boost sterling, however. "Our view of sterling pushing higher, particularly versus the dollar, remains intact," said Joe Tuckey, head of FX analysis at broker Argentex.
"This is largely predicated on the still divergent central bank policy as the Fed reaches the end of its hiking cycle, and is enjoying steadily lower inflation, whilst the still sticky inflation in the UK keeps markets expecting further hikes from the BoE." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Pound vs USD ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Harry Robertson and Amanda Cooper; Editing by Kirsten Donovan)
amanda.cooper@thomsonreuters.com))