Sterling gains against softening dollar

FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna

By Alun John

LONDON (Reuters) - Sterling gained against the dollar on Tuesday as the safe-haven greenback fell against most currencies as market sentiment improved on hopes that China would ease its strict COVID-19 curbs.

The pound was last 0.45% higher against the dollar at $1.2014, heading back towards last week's three-month high of $1.2153.

"FX is unbearably correlated with risk assets at the moment and the mood in the market is shifting if not to 'the best of all possible worlds', then not the 'worst of all possible worlds', said Kit Juckes global head of foreign exchange Strategy at Societe Generale.

The British currency in recent weeks has been more responsive to broad shifts in risk sentiment than the European common currency, and the pound also gained a little on the euro which dropped 0.1% to 86.46 pence.

Global shares and commodities rallied on Tuesday following a rebound in Chinese stocks and the yuan as investors bet signs of civil discontent could prompt an easing of China's strict COVID-19 curbs and cheered a relaxation of regulations on developer fundraising.

Lower than expected inflation figures from Spain and Germany's most populous province also helped improve the mood.

Juckes also noted there were several psychological levels through which currencies were struggling to trade.

The pound is trying to break past $1.22 the euro $1.05, while euro/sterling has hit around 85.7 pence several times in recent months before rebounding.

Investors in Britain are also keeping an eye on an appearance by Bank of England Governor Andrew Bailey before lawmakers in the House of Lords on the off chance of any shift in rhetoric ahead of the Bank of England meting in two weeks time.

(Reporting by Alun John; Editing by Frank Jack Daniel)