The pound rose to its highest level against the dollar so far this year after a report calmed fears over the UK retail sector and damped expectations of a series of aggressive UK interest rate cuts.

A survey from the Confederation of British Industry indicated that UK retail sales lost further momentum in January as the balance
of retailers reporting rising sales dropped to a 14-month low.

However, analysts said sales volumes in January were still stronger than expected.

Furthermore, the rise in expectations for sales in February also suggested that there might be some stabilisationin the short term.

Howard Archer at Global Insight said: “The survey indicates that consumer spending is not collapsing, which reinforces the case for the Bank of England to cut interest rates gradually rather than aggressively given current significant inflation risks”.

The pound rose to a high of $1.9929 against the dollar, before paring its gains to stand up 0.2 per cent at $1.9870 by midday in New York. Sterling also rose 0.3 per cent to £0.7427 against the euro and climbed 0.2 per cent to Y212.50 against the yen.

Meanwhile, news of a unexpectedly large jump in US durable goods orders in December gave the dollar a lift.

Michael Woolfolk at Bank of New York Mellon said the figures could be the first of a series of data this week – including today’s US GDP figures and Friday’s US employment report – that showed although the US economy was decelerating, it was still some way from recession.

“If this proves correct, the impact on the greenback may well be negative as reduced risk aversion prompts a reversal in dollar safe haven flows.”

However, the dollar rose 0.2 per cent to $1.4760 against the euro, climbed 0.4 per cent to SFr1.0940 against the Swiss franc and edged 0.1 per cent higher to Y106.95 against the yen.

Analysts said the currency market’s limited reaction to the figures reflected caution ahead of Wednesday’s interest rate decision from the Federal Reserve, which was widely expected to cut its Fed funds rate by 50 basis points to 3 per cent.

However, the Canadian dollar bucked the trend, rising through parity against the dollar for the first time in three weeks as it climbed 0.7 per cent to $C0.9975.

Analysts put the loonie’s strong performance down to buoyant global stock and gold prices.

Adam Cole at RBC Capital Markets said: “The Canadian dollar is the most cyclical of the major currencies, given the very open nature of Canada’s economy and its reliance on commodities .

“It tends to be strong when equities or precious metals rally.”

Copyright The Financial Times Limited 2018. All rights reserved.

Comments have not been enabled for this article.