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Sterling slips to fresh 3-week low amid Fed hike bets, Ukraine fears

ForexJan 25, 2022 16:21
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© Reuters. FILE PHOTO: Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

By Joice Alves

LONDON (Reuters) - Sterling slid to a fresh three-week low versus the U.S. dollar on Tuesday as investors remained cautious on risk assets amid growing tensions in Ukraine and bets the Federal Reserve will hike rates.

Sterling, which is considered a riskier currency, has been under pressure as investors were nervous about the potential for military conflict in Ukraine.

Russia said on Tuesday it was watching with great concern after the United States put 8,500 troops on alert to be ready to deploy to Europe in case of an escalation in the Ukraine crisis.

"The U.S. dollar is a safe haven suggesting that cable is likely to slip on any further increase in tensions," said Jane Foley, head of FX strategy at Rabobank London.

Additionally, markets are watching a Fed meeting ending on Wednesday that could signal the removal of its vast stimulus programme. The jitters sent the dollar higher against a basket of currencies.

Sterling was flat versus the greenback at $1.3483 at 1600 GMT, after touching its lowest level since Jan. 3 of $1.3436.

Versus a weakening euro, sterling rose 0.4% to 83.61 pence, after sliding to its lowest level this year on Monday against the single currency.

Rabobank's Foley also said the rising cost of living may force investors to scale back some of their Bank of England interest rates rising bets for 2022.

Markets are pricing in BoE interest rate hike in February, after a surprise hike in December by 15 basis points, to 0.25%.

"Although we think that the Bank will hike rates again in February, in our view the Bank may be unable to hike again this year in view of the impact on demand from falling real wages," Foley said.

"If the market back-tracks on interest rate expectations, GBP could be left exposed," she said.

Traders also said they were monitoring rising political risks in Britain as police opened an investigation into possible COVID-19 lockdown breaches at Boris Johnson's Downing Street office and residence, the latest blow to a prime minister facing growing calls to resign.

GRAPHIC - Cable Jan 25

https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwjrxkvo/Cable%20Jan%2025.png

Sterling slips to fresh 3-week low amid Fed hike bets, Ukraine fears
 

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