LONDON, May 26 (Reuters) - The pound slipped on Tuesday after optimism about an Iran peace deal was tempered by U.S. attacks on Iranian targets and comments from Secretary of State Marco Rubio that talks could still take a few days.
Sterling was last down 0.2% at $1.348 after rallying 0.6% on Monday on hopes of a deal to end the war and reopen the key Strait of Hormuz. The euro was 0.2% higher against the pound at 86.36.
Markets have dealt with conflicting headlines on the talks in recent days, as they have throughout the conflict.
On Saturday U.S. President Donald Trump said a deal was "largely negotiated", before rowing back his comments the following day.
Most recently, Rubio said on Tuesday that a deal could "take a few days", denting hopes for an imminent end to the conflict.
Sterling has wavered throughout the war, largely as investors have bought and sold the safe-haven U.S. dollar on the back of developments in peace talks.
It is now little changed against the dollar since the start of the conflict on February 27, though it has climbed more than 1% against the euro in that time.
Politics has also influenced Britain's currency, which fell after the May 7 local elections as investors braced for a challenge to Prime Minister Sir Keir Starmer from within his own Labour Party, before rebounding in recent days.
"The prospect of a leadership challenge from (Manchester mayor) Andy Burnham has added to the headlines, but we expect only limited fiscal policy change regardless of the outcome," said Constantin Bolz and Dominic Schnider, currency strategists at UBS, in a note to clients.
They argued that once the Iran conflict is over the outlook for the pound will brighten.
"While GBPUSD may stay subdued in the short term due to UK political noise and high oil prices, we expect a recovery as uncertainty fades, oil prices normalize, and robust economic data support the pound."
The UK economy expanded 0.6% in the first quarter of the year, although experts have said the figures could have been distorted by seasonal adjustments.
Data last week pointed to signs of weakness, with UK employers cutting hiring and retail sales sliding.
Reporting by Harry Robertson; Editing by Jan Harvey
Source: Reuters