Sterling steady as traders assess US-Iran deal, focus turns to UK data and BoE

By Sophie Kiderlin

LONDON, June 16 (Reuters) - Sterling held steady against the U.S. dollar on Tuesday as traders weighed the U.S.-Iran interim agreement to end the Middle East conflict and focused on key UK economic data and the Bank of England's interest rate decision.

U.S. President Donald Trump said on Monday a preliminary deal to end the conflict had been signed by the U.S. and Iran, but some uncertainty persisted as details were not immediately public and shippers said it could take weeks for confidence to return and regular shipping to resume after the reopening of the Strait of Hormuz.

While global markets seemed somewhat optimistic about the prospective deal and oil prices fell, the reaction in currency markets was relatively muted.

The U.S. dollar was last little changed against a basket of its major peers, and sterling was virtually flat against the greenback on the day at $1.3416.

The euro was a touch higher against the pound at 86.50 pence.

Traders looked ahead to Wednesday's UK May inflation data, which is expected to come in at 3% on an annual basis according to a Reuters poll. Fresh labour market data and retail sales figures are also due later this week.

Meanwhile, the Bank of England is expected to keep interest rates on hold when it announces its latest monetary policy decision on Thursday.

"The drop in energy prices after the U.S. and Iran struck a deal to reopen the Strait of Hormuz will come as a relief to the majority of the Monetary Policy Committee (MPC), who we suspect had little appetite to raise interest rates," Andrew Wishart, senior UK economist at Berenberg, said in a note.

"The oil price futures curve is now broadly in line with the most benign of three scenarios that the MPC set out at its last meeting," Wishart said.

Traders will look for cues from policymakers on the rate outlook, with money markets most recently pricing in about one interest rate hike from the BoE by year-end after scaling back expectations for increases in recent days.

Also on Thursday, Greater Manchester Mayor Andy Burnham will stand in the Makerfield by-election, which could pave his way back to Westminster for the Labour Party. Should Burnham win in Makerfield, he could challenge Prime Minister Keir Starmer for the party leadership which may trigger renewed political and fiscal policy uncertainty. Both are broadly viewed as potential headwinds for Sterling.

(Reporting by Sophie Kiderlin; Editing by Diti Pujara)