The British Pound was on course for its fourth straight weekly advance on Friday, supported by a weaker US Dollar and recent signs of economic strength that have kept expectations of further interest rate hikes alive.

Sterling was 0.19% higher at $1.3658 at the time of writing, trading close to its strongest level since February. Against the Euro, the Pound was little changed at 85.66 pence.

The outlook for Sterling remains clouded by a gap between economists’ forecasts and market expectations.

A Reuters news agency poll shows economists expect the Bank of England to leave borrowing costs unchanged for the rest of the year, while traders continue to price in at least one rate increase in 2026, according to LSEG data.

The divergence could put Sterling’s recent rally under pressure, although some investors argue that firmer inflation and GDP figures may increase the likelihood of the Bank of England raising interest rates, a move that would typically provide more support for the Pound.

Inflation remains higher than the Bank of England would like, leaving scope for interest rate hikes this year. There is also a reasonable possibility of further increases through until 2027 if inflation fails to ease, Reuters reports.

In addition, the Pound also benefited from a weaker US Dollar, which came under pressure amid concerns that the US Treasury’s efforts to stabilise bond markets could ultimately erode confidence in the currency.

Meanwhile, official figures released on Friday showed that UK retail sales declined in July, as expected, following a sharp increase in June.

Furthermore, separate data showed that the British government also posted an unexpected budget deficit last month.

The Office for National Statistics (ONS) reported that public sector net borrowing stood at £1.8 billion in July, as inflation-driven increases in government spending offset record self-assessed income tax receipts for the month.