The British pound rose against a basket of major currencies in European trading on Tuesday, recovering against the US dollar after three consecutive sessions of losses, supported by a weaker greenback as hopes grew that diplomatic efforts could help contain the military escalation between the United States and Iran.

Investors are awaiting key UK labour market data due later today, which could reshape expectations for the Bank of England's interest rate path over the remainder of the year.

The Price

• The pound rose about 0.1% against the US dollar to $1.3440, up from the opening level of $1.3431. It touched an intraday low of $1.3422.

• Sterling lost around 0.2% against the dollar on Monday, marking its third consecutive daily decline, as traders continued profit-taking following its two-month high of $1.3558.

US dollar

The US Dollar Index fell 0.1% on Tuesday, heading for its first decline in four sessions, reflecting broad weakness in the US currency against a basket of major and minor peers.

The pullback came as demand for the dollar as a safe-haven asset eased, with improving investor sentiment and stronger risk appetite driven by growing optimism that diplomatic efforts could successfully contain the military escalation between the United States and Iran.

Oil prices

Global oil prices fell more than 0.5% on Tuesday, retreating from six-week highs amid profit-taking and rising hopes that diplomatic efforts would ease tensions around the Strait of Hormuz, ensuring the continued flow of oil shipments through the critical waterway.

Iran conflict update

• The US military announced a new round of airstrikes against Iranian military targets, marking the tenth consecutive day of operations.

• The strikes targeted command centers, missile launch sites, drone facilities, and air defense systems as part of Washington's efforts to reduce Iran's ability to threaten shipping through the Strait of Hormuz.

• Iran said it would continue its military response, with reports indicating attacks on US military bases and facilities across the region.

• US President Donald Trump said: "Every time Iran kills an American soldier, it will pay many times over."

• International mediators submitted a formal proposal to Tehran calling for a 10-day ceasefire in an effort to revive the previously agreed temporary accord and reduce military tensions.

• Iran's Foreign Ministry confirmed that indirect contacts and exchanges of messages and proposals with Washington through mediators remain ongoing despite the continued airstrikes.

UK interest rates

According to global interest rate futures markets, traders are currently pricing in roughly a 25% probability that the Bank of England will raise interest rates at its July meeting.

UK labour market

Investors are awaiting key UK labour market data later today, including June claimant count figures, as well as May unemployment and wage growth data, which are expected to help refine market expectations for the Bank of England's policy outlook.

Pound outlook

We expect that if UK labour market data comes in weaker than markets anticipate, expectations for further Bank of England rate hikes this year will ease, putting renewed downward pressure on the British pound.

The New Zealand dollar rose broadly in Asian trading on Tuesday, climbing to its highest level in seven weeks against the US dollar after New Zealand reported stronger-than-expected inflation data for the second quarter.

The figures highlighted mounting inflationary pressures facing policymakers at the Reserve Bank of New Zealand (RBNZ), reinforcing market expectations that the central bank will continue normalizing monetary policy.

The data also strengthened expectations that the RBNZ will raise interest rates at its September meeting, a move that would mark the country's second rate hike since the beginning of the year.

The Price

• The New Zealand dollar rose 0.6% against the US dollar to 0.5873, its highest level since June 5, after opening the session at 0.5838. It touched an intraday low of 0.5832.

• The currency ended Monday down less than 0.1% against the US dollar, marking its second loss in the past three sessions, as escalating military tensions between the United States and Iran boosted demand for safe-haven assets.

New Zealand inflation

Statistics New Zealand reported on Wednesday that the annual Consumer Price Index (CPI) rose 4.1% in the second quarter of 2026, the highest reading since the fourth quarter of 2023. The figure exceeded market expectations of a 4.0% increase and followed a 3.1% rise in the first quarter.

On a quarterly basis, CPI increased 1.5% in the second quarter of 2026, up from 0.9% in the previous quarter and above market expectations of a 1.4% increase.

The data showed that New Zealand's annual inflation rate remained above the RBNZ's medium-term target range of 1% to 3% for a third consecutive quarter.

The renewed inflationary pressures have strengthened the case for the Reserve Bank of New Zealand to continue tightening monetary policy and raise interest rates in the near term.

New Zealand interest rates

• Following its July meeting, the Reserve Bank of New Zealand said further interest rate increases may be required, although the timing and magnitude of any future moves will depend on incoming economic data, inflation trends, and the strength of economic activity.

• Following the inflation data, market pricing for a 25-basis-point rate hike at the September meeting increased from 85% to 95%.

• Investors will closely monitor upcoming New Zealand economic data on inflation, employment, and economic growth to further refine expectations for the central bank's policy path.

Analysis and commentary

Satish Ranchhod, Chief Economist at Westpac, said the inflation data was not as alarming as the Reserve Bank of New Zealand may have feared, particularly given the continued easing in core inflation, "but headline inflation remains elevated."

Ranchhod added that Westpac expects the Reserve Bank of New Zealand to raise its official cash rate at both the September and December policy meetings.

Oil prices climbed on Monday after US President Donald Trump warned Iran it would pay a "heavy price" for the deaths of three American soldiers, while Yemen's Houthi movement announced a maritime blockade on Saudi Arabia, heightening concerns over global energy supplies.

Global benchmark Brent crude rose about 1.3% to settle at $89.22 a barrel, while US West Texas Intermediate crude gained 0.9% to close at $83.23 a barrel. Oil prices have now surged roughly 20% since the start of the month as military tensions between the United States and Iran intensified.

"Every time Iran kills an American soldier, it will pay many times over," Trump said in a post on Truth Social.

He added that his instructions had been conveyed to Secretary of War Pete Hegseth, Chairman of the Joint Chiefs of Staff Daniel Caine, and senior military commanders.

Brent crude had jumped nearly 4% overnight to trade above $90 a barrel after the United States confirmed that three of its service members were killed during the latest clashes with Iran. Prices later trimmed gains following comments from Iranian Foreign Ministry spokesperson Esmaeil Baghaei, who suggested negotiations with Washington could resume if they serve Iran's national interests.

In a separate development, the Iran-backed Houthi movement announced a maritime blockade on Saudi Arabia, a move that could further disrupt oil supplies already affected by Iranian attacks on tankers transiting the Strait of Hormuz.

The Houthis also reiterated threats to shut down the Bab el-Mandeb Strait, which connects the Red Sea to global markets and is one of the world's most important routes for oil shipments and international trade.

Saudi Arabia has been rerouting millions of barrels of oil per day through a pipeline leading to a Red Sea export terminal, providing global markets with a vital alternative outlet during the conflict between the United States and Iran.

Meanwhile, the United States carried out airstrikes inside Iran for a ninth consecutive night in response to repeated attacks on oil tankers passing through the Strait of Hormuz, as Tehran seeks to force vessels to transit through its territorial waters. According to the report, the attacks have killed two sailors and injured more than 12 people so far this month.

A refined products tanker off the coast of Oman was also struck by a projectile over the weekend, triggering a fire onboard, according to the UK Maritime Trade Operations (UKMTO), which said the crew safely abandoned the vessel before being rescued by a tugboat.

The International Maritime Organization (IMO) identified the tanker as the Malta-flagged Kavomaleas.

At the same time, Iran continued retaliating against US strikes by launching missiles toward Washington's allies in the Middle East. Over the weekend, it targeted a power generation and desalination plant in Kuwait for the second time in two days, according to Kuwait Times. Kuwait relies heavily on such facilities for its drinking water supply.

For consumers, the average US gasoline price climbed back to $4 a gallon as US crude prices rose about 18% this month, according to AAA data. That matches the level recorded on June 17, when the United States and Iran signed a temporary agreement aimed at reopening the Strait of Hormuz and halting the fighting.

Amrita Sen, founder and director of research at Energy Aspects, said a sharp slowdown in shipping through the Strait of Hormuz, combined with declining global inventories, could push oil prices above $100 a barrel.

"The market is still treating the situation with a remarkable degree of calm despite the sharp rise in oil prices," Sen told CNBC.

Gold prices were little changed on Monday as investors assessed developments in the conflict between the United States and Iran and their impact on oil prices, while Federal Reserve officials signaled that interest rates may need to rise to curb inflationary pressures.

Spot gold fell 0.2% to $4,006.74 an ounce, while US gold futures for August delivery declined 0.1% to $4,015.90 an ounce.

Middle East developments

"Gold continues to move inversely to oil prices, while market participants closely monitor developments in the Middle East," said Giovanni Staunovo, an analyst at UBS.

US forces continued their strikes on Iran for a ninth consecutive day, while concerns mounted over shipping through the Strait of Hormuz after Iran said two oil tankers were hit by explosions that left them disabled.

Oil prices pared earlier gains after reaching their highest levels in more than a month, following comments from Iran's Foreign Ministry spokesperson suggesting that negotiations with the United States could resume if they serve the country's national interests.

Higher oil prices add to inflation concerns and strengthen expectations that interest rates will remain elevated for longer. Although gold is traditionally considered a hedge against inflation, higher interest rates reduce the appeal of the non-yielding metal.

Federal Reserve policy

On the monetary policy front, Cleveland Federal Reserve President Beth Hammack joined a growing number of Fed officials who believe interest rates may need to rise to address persistent inflation, setting the stage for a heated debate at the central bank's next meeting and possible dissent during the second meeting chaired by Kevin Warsh.

According to the CME FedWatch Tool, markets raised the probability of a Federal Reserve rate hike in December to 80%, up from 73% last week.

"We expect a weaker dollar to support gold prices over the next six to 12 months, with the metal likely to climb back above $5,000 an ounce," Staunovo added.