Market News

By Stefano Rebaudo

(Reuters) -Sterling climbed against the euro and the dollar on Tuesday, lifted by a rally in risk assets after U.S. President Donald Trump announced a ceasefire between Israel and Iran.

Israeli Defence Minister Israel Katz said on Tuesday he had ordered the military to strike Tehran in response to what he said were missiles fired by Iran in a violation of the truce deal. Iran denied violating it, saying there had been no launch of missiles towards Israel in recent hours.

During times of global uncertainty, investors often retreat from sterling - viewed as a risk-sensitive currency - in favour of traditional safe havens such as the Swiss franc, Japanese yen and, more recently, the euro.

The single European currency fell 0.40% to 85.23 pence. It hit 85.74 pence on Monday, its highest level since April 23.

The safe-haven status of the dollar has been under scrutiny on concerns over U.S. fiscal policy, and potential shifts in global reserve currency preferences.

The pound was up 0.55% versus the greenback at $1.3601. It hit $1.36325 last week, its highest level since February 2022. Recent soft economic data and a more dovish tone from the Bank of England have also pressured the British currency.

Analysts said the BoE's vote last week to keep rates steady - with three dissenters in favour of cutting them immediately - suggests that the Monetary Policy Committee is becoming increasingly concerned with the growth outlook and the performance of Britain's labour market.

British business activity expanded modestly but employers cut jobs more quickly, according to a survey released on Monday.

"Rate setters view the current policy stance as restrictive and are ready to ease as inflation pressures fade, but we must be prepared for this to take time," said Dean Turner, chief euro zone and UK economist at UBS Global Wealth Management's Chief Investment Office.

"We expect the BoE to stick with its quarterly cadence of cuts and deliver 25 bps reductions at its August and November meetings, taking the base rate to 3.75% by year-end."

(Reporting by Stefano Rebaudo; editing by Mark Heinrich)