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By Ritvik Carvalho
LONDON, March 23 (Reuters) - The pound hit a month's high against the dollar on Thursday as investors awaited UK retail sales data expected to turn positive for the first time in three months.
A surprise third monthly fall running in retail sales in January pointed to cooling consumer sentiment, the first major sign of weakness in the British economy since last year's vote to leave the European Union.
A dramatically weakened pound - which has lost nearly a fifth of its value following the EU referendum - has driven up the prices of goods, with data showing consumers spending far less on non-essential items.
Sterling touched a day's high of $1.2517 against the dollar shortly after the start of European trading, last trading at $1.2488, up 0.1 percent on the day.
This was above Wednesday's low of $1.2424 the pound had briefly hit after a knife-wielding attacker outside Parliament in London killed three people and injured 40 before being shot dead in what British police called a terrorist incident.
Sterling was 0.2 percent higher against the single currency at 86.34 pence per euro.
A Reuters poll of economists shows February retail sales recovering by 0.4 percent, up from January's negative reading of -0.3 percent.
Analysts at UniCredit said despite a forecasted recovery, Thursday's retail sales figures were likely going to be bearish for the pound.
"UK retail sales for February this morning are not seen fully reversing the drop that emerged in January and will likely offer investors an opportunity to take some profit after GBP-USD being lifted in the past few days by both strong inflation numbers in Britain and renewed USD weakness across the board," they wrote in a note to clients.
"That said, we remain skeptical about sterling’s fortune in the near term. We expect more and clearer evidence that the UK economy will further deteriorate going forward." (Reporting by Ritvik Carvalho; Editing by Tom Heneghan)