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Sterling rebounds from five-month low, eyes on data

UK pound coins plunge into water in this illustration picture

LONDON (Reuters) - The British pound rebounded on Monday from its biggest weekly fall against the dollar since July, bouncing from a five-month low hit on Friday as markets prepare for a data-heavy week that could influence Bank of England policy in the coming months.

Labour market data on Tuesday and inflation figures on Wednesday will be key to determining how soon the BoE can cut interest rates, with markets pricing August as the most likely start date for policy easing.

Traders are pricing just under a 50% chance of an interest rate cut in June, while only two quarter-point rate cuts are priced this year, which ING strategists say could leave sterling vulnerable if the data causes markets to price in looser policy.

"Any downside surprise on wages or services data could hit sterling quite hard," ING head of markets Chris Turner said in a note.

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The pound was last up 0.4% against a broadly softer dollar at $1.24965, above its lowest since November of $1.24265 reached on Friday.

Sterling was at 85.34 pence per euro, up around 0.2%.

Eyes were also on heightened geopolitical tensions after Iran launched an attack on Israel over the weekend, although market moves were generally muted across asset classes.

"The market has been reluctant to react too strongly to geopolitical risks of late," said Kyle Chapman, FX markets analyst at Ballinger Group.

"A stronger escalation in the Middle East is being treated more as a tail risk rather than the main theme being traded on," Chapman added.

Traders were also watching commentary from BoE officials this week, with the next deputy governor for monetary policy, Clare Lombardelli, scheduled to take questions from Parliament's Treasury Select Committee on Tuesday.

(Reporting by Samuel Indyk; Editing by Mark Potter)