The British pound edged lower on Tuesday, staying within a narrow range as investors kept a close eye on Middle East tensions that could drive demand for the safe-haven U.S. dollar.
UK data showed the unemployment rate fell unexpectedly, but the drop was largely driven by more students not seeking work rather than a genuine rise in employment. At the same time, average weekly earnings declined, raising concerns about underlying labour market strength.
Analysts said the data did little to support sterling, as the fall in unemployment likely overstated the health of the economy.
Political uncertainty also weighed on sentiment. Prime Minister Keir Starmer faced pressure from opponents, while tensions around a diplomatic appointment added to the backdrop of instability. Market commentary suggested this uncertainty may be limiting both gains and losses for the currency.
Chris Turner, global head of markets at ING, noted that while political risks are present, they have not triggered a sharper selloff in sterling.
The pound was last down 0.28% at $1.3496, while the euro rose 0.1% against sterling to 87.10 pence. Meanwhile, the dollar strengthened after earlier losses as uncertainty around the U.S.-Israeli conflict with Iran persisted.
Investors are also closely watching expectations for interest rate moves by the Bank of England. Markets are now almost fully pricing in one rate hike this year, while anticipating two increases from the European Central Bank.
Despite shifting rate expectations, some analysts highlighted that sterling has held up relatively well against the euro, even as forecasts for further tightening by the Bank of England have been scaled back.
