Sterling falls to February low against dollar, slides versus euro

Sterling fell to a February low against the dollar and lost ground versus the euro on Thursday as investors rushed into safe-haven assets after Russia launched an all-out invasion of Ukraine by land, air and sea. Ukraine's President Volodymyr Zelenskiy said Kremlin leader Vladimir Putin's aim was to destroy his state, while U.S. President Joe Biden and other Western leaders promised tough new sanctions in response.

Sterling fell to a February low against the dollar and lost ground versus the euro on Thursday as investors rushed into safe-haven assets after Russia launched an all-out invasion of Ukraine by land, air and sea.

Ukraine's President Volodymyr Zelenskiy said Kremlin leader Vladimir Putin's aim was to destroy his state, while U.S. President Joe Biden and other Western leaders promised tough new sanctions in response. Safe-haven currencies such as the yen and U.S. dollar were in demand after Ukraine said Russia had launched a full-scale invasion while riskier currencies, including sterling, tanked.

The pound fell 0.9% to 1.3418 against the dollar, its lowest level in February. It was down 0.25% versus the euro at 83.19 pence, after hitting overnight its lowest level since Feb. 3 at 83.07 pence.

The narrative about future interest rates was still in focus, with investors' views mixed ahead of more Bank of England speakers scheduled for later in the day. Bank of England Chief Economist Huw Pill provided another dovish comment on Thursday by saying that the central bank will seek to bring fast-rising inflation down in a "measured way" and one "that doesn't disturb the rest of the economy."

MUFG analysts argued "the conflict is likely to encourage market participants to scale back expectations for monetary tightening from major central banks in the near-term." "We would expect the UK and US rate markets to continue to adjust expectations more in favour of smaller 0.25 point hikes being delivered at their next meetings in March," they added.

Money markets are currently pricing in a 55% chance of a 50 bps rate hike from the BoE in March and fully pricing a rate increase of 130 bps by year-end. "We doubt they (BoE officials) will want to further push back on aggressive pricing of the BoE cycle, which is providing support to GBP and helping to insulate against higher energy prices," ING analysts said.

The UK rate market had already adjusted in recent days to scale back expectations for a 0.50 point hike following less hawkish comments from Monetary Policy Committee officials. Bank of England Governor Andrew Bailey said on Wednesday that markets should not get carried away about the likely scale of interest rate rises, while policymaker Silvana Tenreyro said she saw the case for further modest tightening.

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