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Sterling surges after sales data

Friday, January 17 12:33:56

Strong British retail sales shook the pound out of a week-long torpor today while the New Zealand dollar was the biggest faller among major currencies, halting a run to 9-month highs.

Sterling surged half a percent after the December figures came in far stronger than forecast, wrongfooting many traders who have turned more bearish on the pound after its good six-month run against the dollar.

"We were contemplating a test of support for the pound at $1.6320. In the end we got this stonking number which provoked a genuine reaction," said Daragh Maher, strategist with HSBC in London.

It has been a listless past week for the big four currencies. U.S. jobs data have cast some doubt on the dominant view at the start of the year that the dollar should strengthen, while the euro is weighed down by worries over inflation.

The single currency inched down 0.1 percent to $1.3602, with focus shifting to U.S. industrial production data, due at 1415 GMT.

Whether the 5.3 percent annual jump in UK retail sales point to a sustainable recovery in Britain and more fuel for the pound is unclear. Strong spending around Christmas may well have been chiefly on credit and unless wages start to grow in real terms, the Bank of England may be justified in sticking with ultra-low interest rates well into next year.

"We will probably have to wait for employment data to give us some clearer sign of the picture changing," Maher said.

Wage and employment numbers are due next Wednesday, along with minutes from the Bank of England's last meeting. (Reuters)