Sterling nudges higher as US and Iran agree on preliminary deal

By Sophie Kiderlin

LONDON, June 15 (Reuters) - Sterling inched higher against the U.S. dollar on Monday after the U.S. and Iranian officials said they had reached a preliminary agreement to end their war and reopen the Strait of Hormuz.

The memorandum of understanding is scheduled to be officially signed on Friday in Switzerland. Precise terms were not immediately known, and questions remained about the fate of Tehran's nuclear program, which has been a key issue in negotiations. 

Oil prices fell on Monday, with Brent crude futures last down around 5.3% to $82.75 per barrel, and demand for riskier assets picked up. Yet, the market reaction to the prospective deal appeared somewhat cautious - the U.S. dollar was last steady on the day against a basket of its major peers at 99.52, hovering around its lowest since June 5.

"FX market participants will heave a sigh of relief and watch for any signs of this deal breaking down," Kit Juckes, chief FX strategist at Societe Generale, said in a note. 

The pound, which is seen as a risk-sensitive currency, was last 0.15% higher against the dollar at $1.3426. The euro was last up 0.22% against the pound at 86.43 pence. 

ECONOMIC DATA

As the week continues, sterling will have a flurry of economic data to contend with - inflation figures, labour market data and retail sales are all due. 

The Bank of England's latest interest rate decision will meanwhile come Thursday. Policymakers are expected to leave rates unchanged then, but markets will be watching closely for any comments about the potential policy path ahead.

Money markets were last pricing in one quarter-point rate hike from the BoE this year after paring back expectations for tighter policy in recent days. 

Also on Thursday, markets will be following the crucial Makerfield by-election, which could pave the way back to Westminster for Greater Manchester Mayor Andy Burnham, the candidate of the governing Labour Party. A Burnham win could ignite a party leadership battle that might see him replace Prime Minister Keir Starmer. 

Political uncertainty and worries over what a leadership change may mean for UK fiscal policy are widely regarded as a potential risk for sterling. 

"We are still bearish on sterling on the back of the political developments we think are coming in the near term," Nick Rees, head of macro research at Monex Europe, said, noting that a leadership challenge to Starmer may come quite soon should Burnham win the by-election. 

(Reporting by Sophie Kiderlin; Editing by Alison Williams)