July 31 (Reuters) - The pound was set for monthly gains against the dollar and the euro on Friday, as expectations of interest-rate hikes and signs of stability in local politics helped the bruised currency regain some ground.
Sterling slipped 0.2% against the dollar to $1.344, though was headed for a weekly gain. It was also set for a more than 1% jump for the month, clocking gains after two straight months of declines.
It was broadly flat against the euro on the day , but set for a second straight month of gains.
Britain is more dependent on energy imports than many of its neighbours, meaning UK markets are likely to be more sensitive to big swings in the oil price.
On Friday, Brent crude futures ticked around 1% higher and were set for strong monthly gains as investors assess the developments in the Middle East.
U.S. President Donald Trump said talks in Cairo between mediators and Hamas leaders have led to a phased disarmament agreement in Gaza, but a Hamas official described the deal as a draft and U.S. officials said Israel was sceptical the militant Palestinian group would surrender its weapons.
The pound is one of the handful G10 currencies that have outperformed the dollar so far this year, underpinned by rate-tightening expectations, though concerns about the fiscal health of the economy has kept investors wary of British assets.
Earlier this week, the Bank of England kept interest rates on hold as it waits for a keener sense of how much the U.S.-Iran war will push up inflation. Still, money markets are pricing in at least one 25-basis-point rate increase by the year-end, according to LSEG-compiled data.
"The Bank of England managed to comfort markets about the inflation trajectory, in line with our own economists' views. This should give the BoE more time to hold the policy rate," ING analysts said in a note.
Geopolitics was also front and centre this month as Andy Burnham became Britain's seventh prime minister in a decade with focus now on the new government's budget due later this year.
Reporting by Shashwat Chauhan in Bengaluru; Editing by Arun Koyyur
