LONDON (Reuters) - Sterling rose on Tuesday, moving further off recent lows and rallying in line with a rebound across markets, as investment flows to safe-haven currencies and assets a day earlier caused by the war in the Middle East reversed somewhat.
The pound was 0.5% higher against the Japanese yen at 182.5 yen having fallen a similar amount the day earlier - the yen is typically a beneficiary of a rush to safety in markets - and up 0.2% against the dollar at $1.2265.
Other 'risk' assets like stocks were also trading higher on Tuesday. [MKTS/GLOB]
The British currency has managed something of a comeback in recent days against the dollar, rising for the past five sessions after having its worst month in a year in September. Last week it had dropped to a six-month low of $1.20385 as markets reassessed earlier bets of several more rate hikes from the Bank of England.
Jane Foley, head of FX strategy at Rabobank said the latest move higher in cable - the pound versus the dollar - was largely a dollar story.
"The dollar has been taking a bit of a breather, as despite the blowout payrolls number on Friday there was enough in the report to keep on track the view that inflation pressures in the U.S. are moderating," she said.
"Yesterday there were a lot of other factors coming into the market, given the events over the weekend in Israel, but by the end of the U.S. session and into today the market moved to recover the initial risk-off move, and that allowed FX markets to think back to U.S. payrolls number on Friday."
That data showed U.S. employment increased by the most in eight months in September, though the annual increase in wages was the smallest gain since June 2021.
The pound was steady against the euro at 86.39 pence. The British currency weakened as to as much as 87.06 pence per euro in late September, its weakest since May.