Sterling rose against a weaker dollar on Tuesday, but stickier than expected British inflation remains in focus ahead of a quiet week for the country's data calendar.
Investors were largely focused on moves in the U.S. dollar as a deal to raise the U.S. debt ceiling faces its first test in Congress, and on the yen, which strengthened after an impromptu meeting of Japan's finance ministry and central bank.
"It's (sterling) caught in the crossfire of the moves in the dollar and the yen and generally it's quite weak this week" said Adam Cole, head of FX strategy at RBC Capital Markets.
At 1013 GMT, the pound was 0.5 per cent higher against the dollar at $1.2416, and 0.35 per cent up against the euro at 86.39 pence.
Last week data showed British inflation fell in April but by less than expected and it remains above the rate of price growth in the United States and most of Europe, increasing pressure on the Bank of England (BoE) to keep hiking interest rates.
Stickier than expected inflation is still on the radar this week, with a survey on Tuesday showing British shop price inflation picking up this month to reach its highest rate since industry records began in 2005, although growth in food prices cooled slightly.
The pound has come off an 11-month high of $1.26790 touched on May 10, but remains close to that level.
The BoE will convene on June 22, with traders betting on an 84% chance of a 25-basis-point hike from the BoE. The central bank has raised interest rates 11 times since December 2021 in a bid to bring down soaring inflation.
"Most important is the next CPI release, that is the primary driver and secondary to that the labour markets data and the earnings data in particular, as a longer leading indicator of where inflation is going," said Cole, whose team remains negative on the pound's outlook.
Britain's next CPI print is due on June 21, while labour market data is due on June 13.
(Reporting by Lucy Raitano; Editing by Emelia Sithole-Matarise)