Sterling inches higher against the dollar; gaining for fourth consecutive day

The pound edged higher against the U.S. dollar for the fourth consecutive day on Tuesday, underpinned partly by data that showed retail inflation picked up sharply in January, while UK political uncertainty simmered on.

Sterling was last 0.12% higher against the dollar at $1.3696, hovering near a four-month high. GBP=

Against the euro, the pound was last 0.12% lower to 86.72 pence to the euro. EURGBP=

The dollar has been under pressure from an array of issues in recent weeks, including geopolitical and tariff uncertainty which reinvigorated the "sell America" trade last week, while traders have also been on alert regarding potential coordinated currency intervention by authorities in the United States ‌and Japan.

The pound meanwhile has strengthened, buoyed by strong domestic data last week that indicated a pickup in the economy.

Figures from the British Retail Consortium on Tuesday showed that prices at major British retailers rose at the fastest pace in almost two years in January.

"Any suggestion that inflation has peaked is simply not borne out by these figures," BRC Chief Executive Helen Dickinson said.

The data could complicate decision-making for the Bank of England, which is broadly expected to keep interest rates unchanged when it meets next week. Markets show traders currently expect one rate cut by the middle of the year, with a strong chance of a second by December.

However, political tensions have been growing with the Labour Party blocking Manchester Mayor Andy Burnham from returning to parliament. Burnham is widely seen as a potential challenger to Prime Minister Keir Starmer, whose leadership of the Labour Party has been called into question.

The global moves have taken some heat away from domestic UK issues for sterling, said Nick Rees, head of macro research at Monex.

"Sterling right now is benefiting from the distractions elsewhere in markets, but we think traders should be focused on the UK political situation, because that is really quite volatile," he said.

"What looks like an emerging Labour civil war is not great for confidence, it's not great for stability, it's not great for political decision-making," Rees said, noting that the fiscal backdrop in the UK is already difficult.

"So you add all that up, we see downside sterling risks as soon as markets start paying attention."

Graphic: World FX rates in 2023 http://tmsnrt.rs/2egbfVh

Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

-Sophie Kiderlin/Reuters