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REFILE-Sterling holds below one-month highs after retail sales data

·2 min read

(Fixes byline)

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

By Stefano Rebaudo

LONDON, Sept 17 (Reuters) - Sterling held below a recent one-month high versus the dollar on Friday as UK retail sales undershot expectations, while some investment banks brought forward their forecast for a Bank of England rate rise to the middle of 2022.

British retail sales volumes unexpectedly fell last month in their longest streak of declines since current records began, though they remain above pre-pandemic levels.

“A poor UK August retail sales report may take some of the momentum out of the rise in the UK money market rates and also GBP,” ING said, referring to the British pound.

Some analysts forecast the Bank of England (BoE) will raise rates in mid-2022, after recent strong inflation and economic data.

Goldman Sachs said on Thursday it had pulled forward its baseline forecast for a rate rise to May 2022 as the view of the BoE's Monetary Policy Committee is that minimum conditions for starting a monetary tightening have been met.

“In rates strategy, we find that 2022 forwards are heavily leaning towards a hawkish outturn whilst forwards beyond 2022 are leaning towards a dovish outcome,” Deutsche Bank economists said in a research note.

Sterling hit a multi-week high versus the dollar on Tuesday as data showed that underlying U.S. consumer prices increased at their slowest pace in six months in August.

Although BoE rate-setters may be tempted to vote next week for an early end to their COVID-19 stimulus plans, they are likely to hold off for now.

Versus the dollar, sterling was flat at $1.3784 at 0745 GMT, not far from the one-week low of $1.3765 touched on Thursday. It hit an early August high of $1.3913 on Sept. 14.

Sterling was 0.05% higher versus the euro at 85.34 pence.

Deutsche Bank economists argue a recent rise in oil prices could weigh on sterling.

They note Britain is a net importer of fuels running a significant deficit in natural gas, adding that “the combination of the much sharper recent increase in gas prices and this fuel composition has led to a larger deterioration in the UK's terms of trade compared to European peers.” (Reporting by Stefano Rebaudo Editing by Mark Potter)

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