Sterling hits three-week high versus dollar

LONDON, July 7 (Reuters) - The pound rose to a three-week high against the dollar on Tuesday as the U.S. currency continued to slip in the wake of Thursday's weaker-than-expected U.S. jobs report, and hit a new one-year high versus the euro.

Sterling rose to $1.3401, the highest since June 17, before slipping slightly to trade at $1.338.

The dollar hit a 13-month high in late June against its major peers as traders increased their bets on a Federal Reserve rate hike this year.

But the U.S.-Iran framework agreement has pulled down oil prices sharply and Thursday's nonfarm payrolls report showed the economy added fewer jobs than expected in June, causing markets to reduce their wagers on rate rises and pushing the dollar lower again.

The pound continued to trade at a 13-month high versus the euro, with the euro zone's currency slightly lower on Tuesday at 85.41 pence.

Euro zone inflation came in lower than expected in June, data showed last week, causing markets to trim their bets on European Central Bank rate hikes.

Analysts say the pound has benefited from the fall in oil prices, which surged earlier this year due to the Iran war and threatened to hit the UK economy, which is a major importer of energy with low levels of gas storage.

Likely next Prime Minister Andy Burnham has also committed to the government's fiscal rules, allaying some fears among investors that the left-leaning former mayor of Greater Manchester would ramp up spending once in power.

"Sterling's surprising resilience amidst recent political turmoil reflects a simple reality – much of the bad news has already been priced in," April LaRusse, head of investment specialists at Insight Investments, said.

"Investors have spent years positioning for UK underperformance, so as outcomes prove less negative than feared, and fundamentals begin to stabilise at the margin, the currency is finding support."

(Reporting by Harry Robertson; Editing by Andrew Heavens)