Market News

By Jaspreet Kalra

(Reuters) -Sterling tracked the euro higher against the dollar on Tuesday as markets gauged the probability of a peace deal between Russia and Ukraine following encouraging diplomatic signals from a White House meeting with European leaders.

Sterling was up 0.1% at $1.3515 on the day amid largely muted moves in foreign exchange markets. Against the euro, sterling was flat at 86.34 pence to the common currency.

U.S. President Donald Trump told his Ukrainian counterpart Volodymyr Zelenskiy on Monday that Washington would help guarantee Ukraine's security in any peace deal to end Russia's war there.

"While the path to peace in Ukraine appears somewhat clearer following last Friday’s and Monday’s summits, markets remain cautious. This is understandable, given that the most challenging negotiations – particularly over territorial issues – are still ahead of us," Francesco Pesole, FX Strategist at ING said in a note.

Earlier in the month, a hawkish repricing of the Bank of England's monetary policy trajectory supported sterling alongside a run of strong economic data.

The focus now is switching to U.K. consumer price inflation data due on Wednesday. Analysts at ING expect both headline and services inflation to have accelerated in July, to 3.7% and 4.8%, respectively.

An acceleration in inflation could slow the pace of interest rate cuts by the Bank of England, though recent weakness in Britain's labour market complicates the outlook.

"What we're going to look at in the UK is really the labour market which is kind of telling you that the BoE has room to cut. The second thing we'll watch in the UK is inflation which kind of tells you that the BoE should not cut," aid Samy Chaar, chief economist at Lombard Odier.

The dollar was steady against a basket of major peers as markets awaited policy cues from the Federal Reserve's annual Jackson Hole symposium later this week.

(Reporting by Jaspreet KalraEditing by Christina Fincher)