By © Reuters. FILE PHOTO: A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand, October 12, 2010. REUTERS/Sukree Sukplang
LONDON (Reuters) – Sterling hit its highest against the euro since July 2016 on Friday, advancing for the fifth consecutive trading day as Russia’s invasion of Ukraine continued to weigh on the single currency.
The pound remains supported as the Bank of England is still expected to hike its interest rate for a third consecutive meeting when it meets this month.
By contrast, expectations for interest rate hikes from the European Central Bank this year have diminished since Russia’s invasion of Ukraine last week, with just 24 basis points worth of tightening priced in by the end of the year.
Before the conflict, markets had been pricing in around 50 basis points of ECB tightening by December.
Against the euro, sterling reached its highest level since July 2016 at 82.61 pence in early London trade before paring some gains.
Sterling dipped 0.3% against a strengthening dollar to $1.3307.
The pound is seen continuing to face headwinds against the dollar, according to Caxton Head of Market Intelligence Michael Brown, given the “poor outlook for risk”.
“Cable has had an incredibly choppy week, trading in daily ranges well over a big figure wide for much of it, though trade hasn’t had much direction to it,” Brown said.
“Despite this, I’d expect the bears to wrestle control before too long,” Brown added.
Sterling advances further against euro on monetary policy divergence
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