Sterling rises vs euro with focus on Ukraine tensions and BoE speeches

Sterling has been outperforming the euro during the Ukraine crisis because Germany's greater reliance on Russian energy has increased the downside risks for the euro zone and scaled back expectations for a rate hike from the European Central Bank, Cole said.

Sterling rose on Tuesday against the euro and edged lower versus the dollar as investors awaited speeches from Bank of England officials and watched for developments on the Russia-Ukraine crisis. Markets will pay attention to any comments from the BoE about the impact of the Ukraine conflict on its plans to hike interest rates as a surge in oil and other commodity prices has underpinned risks to growth, investors said.

BoE members of the Monetary Policy Committee Michael Saunders and Catherine Mann are set to speak later in the day. "Since the news (about the conflict) broke, the market has been reassessing the pace of rate hikes from various G10 central banks including the BoE," said Jane Foley, head of FX Strategy at Rabobank in London.

Money markets are currently pricing in 25 basis point rate increase from the BoE in March. Sterling rose 0.45% versus the euro at 83.215 pence by 1430 GMT, heading towards a three-week high of 83.07 pence last week. Versus a strengthening dollar, sterling edged 0.17% lower to $1.3398.

"Sterling has been pretty robust actually," said Stuart Cole, head macro economist for Equiti Capital. "It is a bit lower versus the dollar, which isn't unexpected as in times of crises the dollar takes on its safe-haven status... If you look at the euro, it is much weaker," he said.

The euro was 0.6% lower against the dollar, not far from a 21-month low touched last week. Sterling has been outperforming the euro during the Ukraine crisis because Germany's greater reliance on Russian energy has increased the downside risks for the euro zone and scaled back expectations for a rate hike from the European Central Bank, Cole said.

 

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