LONDON (Reuters) - Sterling rose from the day’s lows on Tuesday though investors were wary of pushing it higher before data that may raise hopes of an interest rate hike in August and rising political uncertainty after the resignation of two top ministers.
Boris Johnson followed Brexit minister David Davis in resigning in opposition to May’s hard-fought blueprint for how Britain is to structure its relationship with the European Union after its leaves the bloc in March.
“Sterling will continue to tread water at these levels as focus shifts to the data with the political story dominating attention,” said Viraj Patel, an FX strategist at ING in London.
In early London trading sterling rebounded from Asia’s lows of $1.3225 to rise 0.1 percent on the day at $1.3272.
While sterling has recovered nearly two percent from eight-month lows of $1.3050 hit in late June, it is well below a 2018 high of nearly $1.44 hit in April.
A slate of data is due with UK manufacturing and monthly GDP numbers due shortly.
However, recent improvement in economic data and upbeat comments from Bank of England Governor Mark Carney has lifted expectations of an August rate hike to more than 70 percent from less than 50 percent two weeks ago.
In June, investors were surprised when three out of nine BoE rate-setters, more than expected, voted for an immediate rise in rates, increasing the chances of a hike in August.
But positioning data indicated investors were wary of buying sterling as concerns about Prime Minister’s ability to secure favourable terms in negotiating Brexit dogged investors.
Under the agreement announced by May on Friday, Britain will retain a close trading relationship with the EU, making the sort of arrangement business leaders have called for in recent weeks more likely.
But analysts said May’s success in getting broad agreement for her plan for life after the EU was important, reflecting sterling’s relatively muted moves on Monday.
“We believe a deal will be reached, but it will take time and until then, concerns about a no-deal outcome will likely intensify,” economists at UBS Global Wealth Management said in a note.
Against the euro, sterling was a shade stronger at 88.57 cents.
Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
Reporting by Saikat Chatterjee, Editing by William Maclean