Sterling outperforms on rate views, focus now on China data, Yellen

By Ian Chua

SYDNEY (Reuters) - Sterling was broadly higher early on Wednesday after the Bank of England put the prospect of an interest rate hike front and centre, while a surprise fall in U.S. retail sales kept the dollar pinned down.

The pound rallied to two-week highs against the dollar, yen and the euro. It climbed as far as $1.5640 and 192.94 yen , while the euro slid to 70.33 pence .

Sterling last stood at $1.5637, following a 1 percent jump in its best one-day performance in a month.

"We think this move has further to run in the coming weeks and months as pricing for rate hikes still appears too distant in our view," said Greg Moore, senior currency strategist at RBC Capital Markets.

Speaking to British lawmakers on Tuesday, BOE Governor Mark Carney said the time for a first rate hike since the financial crisis was getting closer.

His comments caught the market's attention just as Greece was becoming less of a concern and put the spotlight firmly on Federal Reserve Chair Janet Yellen's congressional testimony.

While Yellen is likely to reiterate that the Fed will probably start hiking rates this year, disappointing U.S. retail sales on Tuesday lengthened the odds for a September lift off.

Core retail sales slipped 0.1 percent, confounding forecasts for a 0.4 percent increase, fuelling concerns the economy was slowing again.

Yet, the dollar's reaction was muted at best. It recoiled to 123.35 yen from a two-week high of 123.74, while the euro came within a whisker of $1.1100 before drifting back to $1.1015.

The Australian dollar reached a high of $0.7479 , pulling further away from a six-year trough of $0.7372 set a week ago.

Further gains for the Aussie now hinge on a slew of Chinese data, including second quarter gross domestic product, due out around 0200 GMT. Any disappointment will likely renew pressure on the currency, which is often used as a liquid proxy for China plays.

The Chinese data will be followed by the Bank of Japan policy decision due between 0230-0500 GMT. Governor Haruhiko Kuroda will brief the media at 0630 GMT. Traders expect no significant shift in the BOJ's steady stance.

The Bank of Canada also meets later amid talk it could cut rates by a quarter point to 0.5 percent. [CAD/]

Greece would also fight its way back onto the front pages if Prime Minister Alexis Tsipras fails to persuade deeply unhappy leftist lawmakers to vote for a package of austerity measures to secure a new bailout.

(Editing by Shri Navaratnam)