Investing.com - The pound extended gains against the dollar on Thursday, rising to six-week highs following disappointing data on U.S. retail sales and jobless claims, after the Bank of England downplayed the threat of deflation earlier in the day.
GBP/USD hit highs of 1.5389, the strongest since January 2 and was last at 1.5360, up 0.83% for the day.
The dollar weakened after the Commerce Department reported that U.S. retail sales fell 0.8% in January, the second straight monthly decline.
Core retail sales, which strip out automobiles, gasoline, building materials and food, edged up just 0.1%, indicating that consumer spending slowed at the start of the year.
A separate report from the Labor Department showed that the number of Americans filing claims for first time unemployment benefits rose 25,000 to 304,000 last week, but the underlying trend still pointed to an improving labor market.
Sterling received a boost earlier in the session after the BoE played down the threat of persistent deflation in its quarterly inflation report, despite warning that inflation would likely fall below zero in the first half of the year.
BoE Governor Mark Carney said there was no threat of persistent deflation as the decline in inflation was largely due to falling petrol, food and energy prices.
The bank expects inflation to rise above its 2% target in two year time and to rise fractionally above that in three years’ time if interest rates rise as markets expect.
In a change to its forward guidance, the bank said it would now consider cutting interest rates below 0.5% if inflation dips more deeply into negative territory than expected.
"The MPC stands ready to take whatever action is needed, as events unfold, to ensure inflation remains likely to return to target in a timely fashion, Carney said.
In other trade, sterling trimmed back gains against the euro, with EUR/GBP down 0.36% to 0.7411, after falling to fresh seven-year lows of 0.7372 earlier.
The single currency remained under pressure after talks on the Greek deb crisis on Wednesday ended without an agreement on extending the country’s bailout, though both sides said there was still hope for a deal. Further talks were due to be held on Monday.