UK inflation jumps unexpectedly to hit 6-month high in August
The pound has risen to an eight-week high as investors prepared for an EU summit where diplomats will try to pave the way for an agreement on Brexit.
That has helped sterling rally around 4 percent from 2018 lows hit in August when fears that Britain would crash out of the EU without a trade deal spooked investors.
Traders have been unwinding short positions on sterling in part because they see a growing chance of a breakthrough at an informal EU summit in Austria which starts on Wednesday.
But with only six months before Britain leaves the EU and Prime Minister Theresa May yet to secure a trade deal concerns remain over a disorderly exit, which could plunge the economy into a downturn.
A row within the ruling Conservative Party over the sort of deal May is proposing has also capped sterling's gains.
"Can May save the pound? This summit is considered a turning point for Brexit. If sentiment sours making a "no deal" scenario more likely, then we could see the pound tumble," said City Index analyst Kathleen Brooks.
The pound rose 0.2 percent to $1.3177 against the dollar, its strongest since July 31.
Against the euro the British currency weakened 0.3 percent to 88 pence.
Traders were also preparing for year-on-year consumer price inflation, due at 0830 GMT, for the month of August.
Published: by Radio NewsHub