Sterling pauses after four-week rally as investors brace for US sanctions on Iran

Aug 24 (Reuters) - The British pound ticked lower against the dollar on Monday, easing from a four-week rally and as investors braced for a wave of U.S. sanctions on Iran and its trading partners.

Sterling dipped nearly 0.1% to $1.3633 by 0956 GMT, after hitting a more than six-month high of $1.3675 on Friday. The pound was flat versus the euro at 85.57 pence to the common currency.

The pound is one of the best performing among Group of Seven peers this year, benefiting from market expectations that the Bank of England will hike interest rates towards the end of the year in the face of better-than-expected economic resilience.

Traders see benchmark interest rates rising by at least 25 basis points by December, LSEG data showed, although most economists anticipate no change. If pricing shifts to match those expectations, that could weigh on the currency.

"The recent combination of resilient growth and easing domestic inflation pressures is encouraging and reinforces our view that there is no need to tighten monetary policy this year," said Maelle Quillevere, an economist at UBS Global Wealth Management, who expects rate cuts could potentially resume in 2027.

Providing some relief to concerns about a sluggish economy, economists at the Resolution Foundation think tank said economic productivity was starting to show signs of sustained improvement, on the back of data last week that also pointed to strength among businesses and consumers.

Meanwhile, Prime Minister Andy Burnham told European Council President Antonio Costa that London should be bolder in pursuing closer ties with the European Union, ahead of a UK-EU summit this year.

The Burnham government's first budget in October will be key for investor confidence in Britain, at a time when concerns over elevated sovereign debt levels and higher borrowing costs have rattled bond markets in the U.S.

The pound's weakness against the dollar on Monday was also as investors mulled the potential implications of U.S. sanctions on Iran and its trading partners, alongside concerns that it could provoke retaliation from Tehran.

U.S. Treasury Secretary Scott Bessent was expected to give a press conference at 1700 GMT.

(Reporting by Johann M Cherian in Bengaluru; Editing by Alex Richardson)