Investor trusts May's Brexit plan as pound rose against dollar

The pound rose towards $1.32 on Tuesday as investors prepared for a European Union summit.

The pound rose towards $1.32 on Tuesday as investors prepared for a European Union summit where diplomats will try to pave the way for an agreement on Brexit.

Traders have been unwinding short positions on sterling, in part because they see a growing chance of a breakthrough at Wednesday's EU summit in Brussels.

With only six months before Britain leaves the EU, major obstacles remain to secure an agreement, including how to keep an open border between the British province of Northern Ireland and the EU member Ireland.

The pound rose 0.3 per cent to $1.3197 against the dollar. It gained 0.1 per cent to 87.85 pence against the euro.

Traders are also focused on a labour market report due at 0830 GMT. It is expected to show the unemployment rate was unchanged at 4 per cent in August and average earnings rose 2.9 per cent, in line with the previous period, according to a Reuters poll.

"The increased likelihood of the deal not being reached during the upcoming EU Summit limits the positive spill-over from solid UK data into GBP," said Petr Krpata, a currency strategist at ING.