Sterling crashed against a surging dollar in its worst day since March 2020 as investors rushed into safe-haven assets after Russian forces invaded Ukraine.
Missiles rained down. Ukraine reported columns of troops pouring across its borders from Russia and Belarus and landing on the coast from the Black and Azov seas.
Safe-haven currencies such as the yen and U.S. dollar were in demand, while riskier currencies, including sterling, dived.
The narrative about future interest rates was also in focus, and investors’ views remained mixed.
BoE Chief Economist Huw Pill provided another dovish comment on Thursday by saying the central bank would seek to bring fast-rising inflation down in a “measured way” and one “that doesn’t disturb the rest of the economy”.
British finance minister Rishi Sunak said he had spoken with Bank of England Governor Andrew Bailey yesterday to ensure financial stability after Russia’s invasion.
Money markets are pricing in a 55% chance of a 50 basis point (bp) rate hike from the BoE in March and fully pricing a rate increase of 125 bps by year-end.
BoE 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.