Sterling rose sharply against a broadly weaker dollar and gained versus the euro on Tuesday, helped by further signs the UK housing market is stabilising. A survey by the Royal Institution of Chartered Surveyors showed house prices in England and Wales fell at their slowest annual pace since November 2007, echoing other recent indicators suggesting house prices may be nearing a trough.
The pound was also buoyed by a calmer UK political vista, with Labour Party parliamentarians on Monday offering their support to Prime Minister Gordon Brown. "Sterling is better bid. It got a boost from housing data falling less than expected and from Gordon Brown gaining some support from MPs," RBC currency strategist Christian Lawrence said.
Bank of England Deputy Governor Paul Tucker warned on Tuesday, however, that although surveys have pointed to some improvement in the British economy, the medium-term outlook remained "highly uncertain". RBC's Lawrence said the pound also benefited from gains in equities and oil prices, which helped boost perceived higher risk currencies, while weak German industrial output data pushed the euro lower against the UK unit.
At 1357 GMT, sterling was up 1.1 percent against the dollar at $1.6225. The euro fell 0.5 percent to 86.17 pence, helping to bring the sterling trade-weighted index up 0.6 points to 82.7. Sterling recovered from steep falls on Monday, which sent it to a two-week low against the dollar of $1.5803 as UK political uncertainty dented the currency.