(Updates story, adds background, comments)
By Ritvik Carvalho
LONDON, April 21 Sterling slipped against the
dollar on Friday after weaker-than- expected UK retail sales,
but it stayed on track for its strongest week since November
after British Prime Minister Theresa May's decision this week to
call an early general election.
May's announcement of a snap election in June saw sterling
surge on Tuesday by more than 4 cents to its highest level
against the dollar since October. Investors expected May to win
a parliamentary majority, bolstering her position in upcoming
negotiations over Britain's exit from the European Union.
The pound lost some of that sheen on Friday, after the
biggest quarterly fall in retail sales in seven years. That
added to signs the vote last year to quit the EU and the price
rises spurred by the currency's resulting slide are finally
putting pressure on consumers.
A 1.8 percent monthly fall in sales in March, below
economists' expectations of a 0.2 percent dip, saw sterling edge
lower versus the dollar in what dealers said was a muted
The pound was 0.3 percent lower at $1.2770 by 1546 GMT,
having risen to as high as $1.2908 on Tuesday.
It was flat on the day at 83.62 pence per euro.
"The confidence the markets have got from Theresa May's
decision to hold an election means that data's taken a bit of a
back seat again on the back of her decision," said Jake Trask,
corporate currency dealer at OFX.
Sterling's surge this week has led to some banks revising
their forecasts for the currency, with Deutsche Bank - one of
the biggest sterling bears - upping its forecast to $1.14 from a
previous $1.06 for the end of this year.
However, the bank maintained caution was still warranted.
"Our new sterling forecast reflects our more optimistic view
of the Brexit endgame, but not of sterling fundamentals,"
Deutsche Bank macro strategist Oliver Harvey wrote in a note,
highlighting Britain's large current account deficit, slowing
growth and ultra-low interest rate environment.
Retailers said on Thursday that British shoppers could face
an average tariff of 22 percent on food from the European Union
if Prime Minister Theresa May fails to reach a trade deal with
Brussels before Britain leaves in two years' time.
That adds to a sense that risks from an expected 18 months
of Brexit talks will cap any further gains for sterling.
A Reuters poll conducted after May's calling of a snap
election also showed analysts see a one-in-three chance Britain
will leave the European Union with no deal and have to trade
under World Trade Organization terms.
Some see that as a worst-case scenario which may weaken
growth for years to come, but it is the prospect of an immediate
deterioration later this year which has investors beginning to
wonder about bets on a rise in Bank of England interest rates.
Slightly hawkish noises from BoE policymaker Michael
Saunders did not give sterling a lift.
Saunders said on Friday that he expected growth and
inflation this year to be higher than the Bank forecast two
months ago, and saw scope for rates to rise modestly while still
boosting the economy.
(Additional reporting by Helen Reid and David Milliken; Editing
by Larry King)