LONDON (Reuters) - Sterling dropped to a six-week low against a stronger dollar on Friday, even though January retail sales data showed British shoppers were out in force last month.
The pound eased 0.1% against the euro to 89.03 pence, and was 0.4% lower against the dollar at $1.19360 having earlier fallen as far as $1.19150, its weakest since January 6.
A stronger dollar was the main factor behind the drop on Friday, as the U.S. currency soared to a six-week high.
"There is definitely a strong USD theme being seen at the moment, stemming from yesterday's stronger PPI numbers which have seen the market now expecting the Fed to maintain its tightening bias for longer," said Stuart Cole, head macro economist at Equiti Capital.
Data on Friday showed British consumers unexpectedly increased their shopping in January, as sales volumes rose by 0.5% from December for only the second month-on-month increase since August 2021. Economists polled by Reuters had expected a 0.3% fall.
"From the prospects of the economy it is good news, as it suggests there is a headwind pushing against the risk of recession," said Cole.
"But for the BoE it may be less welcome news, as buoyant demand makes their task in bringing CPI back to target that much more difficult."
The market is currently pricing in an almost 75% chance of a 25 bp rate hike from the Bank of England at its March meeting..
The pound recorded its biggest daily drop against the single currency in two months on Wednesday when data showed UK consumer price inflation (CPI) cooled to 10.1% last month, the lowest reading since September.
Close attention is being paid to developments around British Prime Minister Rishi Sunak's visit to Northern Ireland as momentum builds towards a deal to revise the Northern Ireland protocol, the trade rules agreed to avoid a hard border with EU member Ireland when Britain left the bloc.
Away from Westminster, UK lender Natwest (LON:NWG) reported a leap in profit in 2022 on Friday that should have sent its shares soaring. But its results contained a stark warning about the rising interest-rate environment.