Sterling surges

Sterling rose on Wednesday, boosted by improved consumer confidence and rising British house prices in August, which added to signs the economy is holding up well in the wake of June's shock vote to leave the European Union. Market research firm GfK said its gauge of consumer confidence rose to -7 in August from -12 in July, when it suffered its sharpest drop in over 26 years. August's level was still the second-lowest since early 2014.
Mortgage lender Nation-wide meanwhile said on Wednesday that British house prices rose 5.6 percent in August compared with the same month last year, faster than July's 5.2 percent. Economists polled by Reuters had expected house prices to rise 4.8 percent. Sterling rose 0.3 percent to $1.3115, while it was up 0.4 percent against the euro at 84.90 pence per euro with month-end demand for the pound also playing a role.
"Overnight, we saw UK August consumer confidence bouncing back," Morgan Stanley chief strategist Hans Redeker said, adding he remained bullish on the pound in the short term. "Our bullish sterling case is more of tactical nature based on better UK data readings. Upcoming PMI data should show a bounce back."
Manufacturing, construction and services sector purchasing managers' surveys will be released at the start of September and many expect activity to bounce back a bit from the Brexit shock. Sterling hit a three-decade low of $1.2798 in July in the wake of the vote for Brexit. It has since recovered about 2 percent, but that still leaves it around 12 percent lower than where it was before the June 23 referendum on EU membership.
Though data since the vote suggests consumer demand has been resilient, investors are anxious that foreign capital will dry up, leaving Britain's already huge current account deficit vulnerable to further widening. And much uncertainty remains over the deal Britain will strike with the rest of the EU.
Prime Minister Theresa May told her cabinet which met after a few weeks of holiday calm that they must deliver on Brexit. The meeting comes amid growing speculation on when Britain will formally start divorce proceedings. May has said she will not trigger Article 50 of the EU's Lisbon treaty to start the exit procedure until next year. "Brexit has become more of a gradual process," strategists at Societe Generale said, adding they still wanted to sell the pound against the dollar at higher levels.