* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Updates prices)

By Elizabeth Howcroft

LONDON, June 18 (Reuters) – Sterling extended its fall
against the U.S. dollar on Friday, dropping below $1.39, hurt by
the U.S. Federal Reserve’s hawkish surprise and an unexpected
fall in Britain’s retail sales.

The pound dropped against a strengthening dollar on Thursday
after the Fed surprised markets by signalling it would raise
interest rates and end emergency bond-buying sooner than

On Friday, it fell further against both the dollar and the
euro. At 1449 GMT it was down 0.3% on the day at $1.3816, having
touched as low as $1.3815 – its weakest since May 3. It
was on track for its worst week since September 2020.

Versus the euro, it was down around 0.4% at 85.855 pence per
euro, on track for a small weekly fall.

British retail sales fell 1.4% between April and May as a
lifting of lockdown restrictions encouraged spending in
restaurants rather than shops. The data did not have clear
impact on the pound.

“GBPUSD remains bogged down below the 1.39 handle by a
confluence of broad USD strength and a slight deterioration in
near-term data,” said Simon Harvey, senior FX market analyst
at Monex Europe.

“The limited impact of the data on sterling is largely
because retail sales volumes remain above pre-pandemic levels
and a shift in consumption patterns towards services after the
May 17th reopening was always likely.”

For cable, market participants are weighing up the Bank of
England and the Fed’s relative pace of possible monetary policy
tightening. The BoE next meets on June 24.

BofA strategists said in a note to clients that it changed
its view on the central bank’s tightening trajectory and now
expects a 15 basis point rate hike in May 2022, compared to
previously expecting no hikes in 2022.

Investors are also watching a dispute between Britain and
the European Union over post-Brexit trade in the British
province of Northern Ireland, which has a land border with EU
member Ireland.

“Brussels’ patience with London’s having its cake and eating
it is wearing thin. Indeed, there is a risk of protocols being
triggered and tariffs being threatened more seriously,” wrote
ING strategists in a note to clients.

“The next few weeks could thus be a vulnerable period for
Cable, where a break of 1.3890 opens up 1.3800/3810 – the last
stop before an extension to the March/April lows of 1.3675.”

British Prime Minister Boris Johnson said he was very
confident that he would be able to lift remaining coronavirus
restrictions on his new target date of July 19, based on the
most recent data.

(Reporting by Elizabeth Howcroft;
Editing by Robert Birsel, Andrea Ricci and Jonathan Oatis)