Pound supported vs dollar but weak economy weighs

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The pound's gains versus the dollar were limited however, and it remained depressed against the euro due to expectations that the British economy may be heading towards a recession, as cautioned by Bank of England policymaker David Blanchflower.

The pound posted a session high of $2.0042, edging close to $2.0153 touched last week for the first time since late March. But at 8:41 a.m., it was at $2.0024, little changed on the day.

The euro was at 79.46 pence, barely moved from Monday and hovering near a one-month high of 80.22 pence hit earlier in July.

"Sterling remains relatively on the back foot against the euro but it does remain off its weakest point and that, along with the background of the weaker dollar, has seen a push back (in the UK currency)," said David Page, economist at Investec.

Investors awaited speeches by Bank of England Governor Mervyn King and Deputy Governor John Gieve on banking reform later in the day, while later on Tuesday, Bank Executive Director Paul Tucker will speak at an economic conference in Ottawa.

Demand for the UK currency has been sluggish as ongoing signs of weakness in the British housing market, coupled with troubles in the financial sector at home and abroad, threatens further to slow the nation's economy.

A weaker economy would normally warrant a cut in interest rates, but the Bank is cautious about doing so given a surge in inflation, partly due to higher oil and commodity prices.

Investors will look to the minutes of a Bank policy meeting earlier in the month, which will be released on Wednesday, to better gauge whether the central bank's board members are leaning towards a rate rise or cut in the future.

A Reuters poll shows that many economists expect the Bank to hold rates at 5.0 percent through the end of the year.

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