FX round-up: Sterling sails higher on UK retail data, ECB rate call

Sterling sailed higher on most key crosses Thursday as investors liked the currency after pleasing UK retail data, European Central Bank holding interest rates and last night's US tax-reform disappointment.

At 17:03 BST, sterling was up 0.3% to $1.2887, and up 0.7% to €1.1866. The dollar-spot index was up 0.19% to $99.231. Sterling was up on the aussie, loonie, kiwi, rand and yen.

"The pound continues to exert pressure on the upside after CBI (Confederation of British Industry) retail sales for April showed the biggest increase in volumes in nearly two years," said Michael Hewson, chief market analyst at CMC Markets UK.

Meanwhile, the ECB kept its policy interest rates unchanged, as expected. It said these might yet be cut and that QE could be extended beyond its December 2017 expiry, if needed.

Connor Campbell, financial analyst at Spreadex, said the pound was a beneficiary of ECB president Mario Draghi's slight dovishness and the dollar's tax plan displeasure.

Chris Saint, senior analyst at HL Currency Service, added that the cable's rise was after the dollar suffered following US President Donald Trump's underwhelming tax-reform plans.

"The centrepiece of his proposals is a big reduction in the corporate tax rate from 35% to 15%, although this had been well trailed in advance," said Saint.

Turning to the euro, it underwent a a choppy session after the ECB was more upbeat on its economic outlook.

Hewson noted that Draghi remained cautious about inflationary factors, and "if anything came across as more dovish than hawkish".

This was probably quite deliberately given the timings of the second round of the French Presidential vote, which was due in early May.

Neil Wilson, senior market analyst at ETX Capital, added that the ECB thought the recovery was broader and more stable but, critically, it warned once again that risks remain tilted to the downside.

"This was enough to stop a brief euro rally in its tracks and send euro-dollar down for the day," said Wilson. The US dollar also made gains on the aussie, loonie, kiwi, rand and yen.

Finally, the Swedish krona was one of Thursday's worst performers after the country's Riksbank left its key interest rate unchanged at 0.5% and pushed out its forecast for a first interest rate rise to around mid-2018.

"The central bank also opted to extend its government bond purchases by SEK15bn, disappointing some expectations that its quantitative easing measures could be drawn to a close," said Saint.