The British pound rose against a basket of major currencies in European trading on Tuesday, recovering against the US dollar after three consecutive sessions of losses, supported by a weaker greenback as hopes grew that diplomatic efforts could help contain the military escalation between the United States and Iran.

Investors are awaiting key UK labour market data due later today, which could reshape expectations for the Bank of England's interest rate path over the remainder of the year.

The Price

The pound rose about 0.1% against the US dollar to $1.3440, up from the opening level of $1.3431. It touched an intraday low of $1.3422.

Sterling lost around 0.2% against the dollar on Monday, marking its third consecutive daily decline, as traders continued profit-taking following its two-month high of $1.3558.

US dollar

The US Dollar Index fell 0.1% on Tuesday, heading for its first decline in four sessions, reflecting broad weakness in the US currency against a basket of major and minor peers.

The pullback came as demand for the dollar as a safe-haven asset eased, with improving investor sentiment and stronger risk appetite driven by growing optimism that diplomatic efforts could successfully contain the military escalation between the United States and Iran.

Oil prices

Global oil prices fell more than 0.5% on Tuesday, retreating from six-week highs amid profit-taking and rising hopes that diplomatic efforts would ease tensions around the Strait of Hormuz, ensuring the continued flow of oil shipments through the critical waterway.

Iran conflict update

The US military announced a new round of airstrikes against Iranian military targets, marking the tenth consecutive day of operations.

The strikes targeted command centers, missile launch sites, drone facilities, and air defense systems as part of Washington's efforts to reduce Iran's ability to threaten shipping through the Strait of Hormuz.

Iran said it would continue its military response, with reports indicating attacks on US military bases and facilities across the region.

US President Donald Trump said: "Every time Iran kills an American soldier, it will pay many times over."

International mediators submitted a formal proposal to Tehran calling for a 10-day ceasefire in an effort to revive the previously agreed temporary accord and reduce military tensions.

Iran's Foreign Ministry confirmed that indirect contacts and exchanges of messages and proposals with Washington through mediators remain ongoing despite the continued airstrikes.

UK interest rates

According to global interest rate futures markets, traders are currently pricing in roughly a 25% probability that the Bank of England will raise interest rates at its July meeting.

UK labour market

Investors are awaiting key UK labour market data later today, including June claimant count figures, as well as May unemployment and wage growth data, which are expected to help refine market expectations for the Bank of England's policy outlook.

Pound outlook

We expect that if UK labour market data comes in weaker than markets anticipate, expectations for further Bank of England rate hikes this year will ease, putting renewed downward pressure on the British pound.