LONDON, July 19 Sterling strengthened against a broadly struggling dollar but fell against a firmer euro on Tuesday, with domestic politics still in the spotlight and the latest data suggesting the costofliving squeeze had not yet hit demand for staff in Britain.

Data showed Britain39;s unemployment rate holding at 3.8 in the three months to May while the number of people in work rose by the most since the middle of 2021.

The labour market data this week was once again strong and this will allow the BoE to tighten more aggressively without fear of damaging employment levels, said Stuart Cole, head macro economist at Equiti Capital.

Sterling was last up 0.7 at 1.20340, but down 0.3 against the euro at 85.14 pence .

The drop against the euro came as the single currency benefited broadly from a sourcebased report that the European Central Bank would discuss whether to raise interest rates by 25 or 50 points at their meeting on Thursday.

Politics also remained in focus for sterling traders as the contest to replace Boris Johnson as British prime minister continues to narrow.

Former finance minister Rishi Sunak won the fourth round of voting but his two remaining rivals, Foreign Secretary Liz Truss and Penny Mordaunt, a junior trade minister, were closing the gap.

Views on what the contest means for sterling39;s outlook were mixed.

With diverging approaches to fiscal policy, whoever becomes the next prime minister could affect the trajectory of future fiscal policy,…