Sterling edged slightly higher against the euro and the dollar on Friday as data showed that British shoppers continued to increase spending last month, taking sales further above pre-COVID levels.
The pound was up 0.03% versus the euro at 0.9130 and up 0.1% against the dollar at $1.2987 , after falling to $1.2866 on Thursday after the Bank of England said it was examining how it might cut interest rates below zero.
British retail sales now stand 4.0% higher than before the crisis. The sector has enjoyed a faster rebound than the rest of the economy, helped by strong online demand.
But the prospect of a chaotic end to the Brexit transition period in December if Britain fails to agree a trade deal with the European Union continues to overhang sterling, with rising COVID-19 cases and higher unemployment adding to uncertainty.
“The increased probability of no-deal Brexit makes negative rates even more likely, in our view,” said ING analysts.
“We continue to see more downside to GBP as not enough risk premia is priced into the currency,” they said adding that ING expects EUR/GBP to test the 0.9300 level again this month.
Reporting by Joice Alves; Editing by Catherine Evans