×

UPDATE 1-Sterling headed for best week in five months as dollar tumbles

* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv (Adds details, quotes after retail sales release)

LONDON, Feb 16 (Reuters) - The pound is headed for its best weekly performance in five months against a dollar down across the board, although data on Friday showing British retail sales barely budged in January took some of the shine off sterling.

The British currency was flat at $1.4096 after trading above $1.41 before the retail sales data was released. The pound had risen to a daily high of $1.4145 in Asian trading.

Against the euro, the pound traded down 0.2 percent at 88.85 pence per euro.

A falling dollar and growing expectations that the Bank of England will tighten monetary policy faster this year have lifted sterling, and the British currency is up 1.9 percent since Monday.

But concerns about UK economic weakness were underlined by data showing retail sales volumes rose 0.1 percent on the month, less than the 0.5 percent monthly rise that economists had forecast in a Reuters poll, after dropping 1.4 percent in December.

"The retail sales are a bit shy of expectations. But there's such a bearish stance on the dollar it would have taken something much more substantial to have hit sterling," Craig Erlam, an analyst at Oanda said.

Traders are looking to earnings data next week, which if better than expected could feed into bets that the BoE will tighten monetary policy faster. Investors are also watching for progress on Britain agreeing a transition plan with the European Union for when it leaves the trading bloc.

ING analysts said sterling was "enjoying the weak dollar environment and is taking a glass half-full attitude to Brexit". The bank said the pound should find support at $1.40.

Last week, the central bank said rates needed to rise a bit more and sooner than it had previously thought. The market is pricing in a roughly 70 percent chance of a first rate increase for May.

Sterling is up more than 4 percent against the dollar this year and in January, trading at $1.4346, it hit its strongest level since the vote to leave the European Union in June 2016. (Reporting by Tommy Wilkes, editing by Larry King)