Britain's pound jumped back above $1.30 for the first time in more than three weeks on Tuesday ahead of a parliamentary debate over the Prime Minister Theresa May's European Union repeal bill. May warned lawmakers over the weekend that Britain could be faced with a Brexit "cliff edge" if they failed to back her bill, which will sever Britain's ties with the bloc and will see existing EU legislation copied across into domestic law.
Finance minister Philip Hammond urged lawmakers on Monday not to seek to delay the legislation, following reports that the opposition Labour Party is planning to propose several changes to the bill. If May manages to get the bill through parliament, strategists say that could lift sterling, as it would ease a little of the uncertainty that has kept the currency under pressure.
Data on Friday showed speculators added to their bets against the pound in the week up to last Tuesday, taking net short positions to their highest level in almost four months. Rabobank currency strategist Jane Foley said Tuesday's currency moves could be explained by "position adjustment" ahead of Thursday's debate in parliament, as well as the European Central Bank policy meeting, which will be eyed for signs on when the bank might start to wind back - or taper - its bond-buying programme.
"The market is very short sterling and I think that probably explains today's move," she said. "There is this question over whether (ECB President Mario) Draghi doesn't announce tapering (of bond buying), and there's also a chance that Theresa May manages to get through the second reading of the Repeal Bill...which would be sterling-positive." Sterling rose as much as 0.8 percent to hit $1.3034, its strongest since August 14.
Against the euro, it climbed 0.6 percent to 91.47 pence. Earlier, the monthly Purchasing Managers' Index (PMI) survey for the services sector showed growth at its weakest in almost a year, with the index falling to 53.2 in August - still above the 50 mark that separates growth from contraction but lagging forecasts for a reading of 53.5.
The pound briefly dipped after the numbers, before recovering. "The services PMI data has shown that the UK's economy is losing steam, and this means that the Bank of England (will) have to continue its support," said Think Markets analyst Naeem Aslam, referring to the BoE's loose monetary policy that includes record low interest rates.
The BoE will meet next week to discuss policy. Britain's economy initially withstood the shock of the Brexit vote in June last year, but it slowed sharply in early 2017, as rising inflation - caused in large part by the pound's steep falls following the vote - and weak wage growth ate into spending by households. Sterling has fallen around 13 percent against the dollar since the EU referendum, and around 17 percent versus the euro.