Investing.com - The pound approached five-year highs against the dollar on Tuesday after data revealed an improving U.K. services sector, while soft trade data out of the U.S. weakened the greenback.
In U.S. trading on Tuesday, GBP/USD was trading at 1.6980, up 0.66%, up from a session low of 1.6866 and off a high of 1.6997.
Cable was likely to find support at 1.6853, Monday's low, and resistance at 1.7042, the high from August 5, 2009.
Sterling soared after Markit Economics said its U.K. service-sector purchasing managers' index rose to a four-month high of 58.7 in April from 57.6 in March. Analysts had expected the index to remain unchanged in April.
The upbeat data added to expectations the Bank of England could raise borrowing costs ahead of other central banks.
Meanwhile in the U.S., data revealed that the country's trade deficit narrowed to $40.38 billion in March from $41.87 billion in February, whose figure was revised from a previously estimated deficit of $42.30 billion. Analysts had expected the trade deficit to narrow to $40.30 billion in March, and the lackluster data softened the dollar.
Elsewhere, sterling was up against the euro, with EUR/GBP down 0.33% at 0.8199, and up against the yen, with GBP/JPY up 0.11% at 172.49.
In Europe, Eurostat, the European Union's statistical arm, reported that retail sales rose 0.3% in March, defying expectations for a 0.2% contraction. Retail sales in February were revised down to a 0.1% gain from a previously estimated 0.4% increase.
The numbers supported the euro as did upbeat Spanish jobless numbers.
Official data released earlier revealed that the number of unemployed people in Spain dropped by 111,600 in April, compared to expectations for a decline of 49,100, after a 16,600 fall the previous month.
Separately, the Markit Economics research group said that Spain's services purchasing managers' index rose to a six-year high of 56.5 last month, from a reading of 54.0 in March. Analysts had expected the index to tick up to 54.4 in April.
Italy's services PMI swung back into expansion territory last month, rising to 51.1 from a reading of 49.5 in March, beating expectations for an uptick to 50.4.
The euro zone's service-sector PMI came in unchanged at 53.1, in line with expectations.