September 19, 2018 / 8:32 AM / 8 months ago

Sterling rises to eight-week high ahead of EU summit, inflation data

* Graphic: World FX rates in 2018

* Graphic: Trade-weighted sterling since Brexit vote

LONDON, Sept 19 (Reuters) - The pound rose to an eight-week high on Wednesday as investors prepared for an EU summit where diplomats will try to pave the way for an agreement on Brexit.

Brussels and London have made positive noises in recent days on major obstacles to Brexit including how to keep an open border between the British province of Northern Ireland and EU-member Ireland.

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.

It is expected to show a rise of 2.4 percent, according to a Reuters poll, down from 2.5 percent in the previous month. (Reporting by Tom Finn; Editing by Janet Lawrence)

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