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Sterling hits highest since 2016 against euro, falls versus dollar

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© Reuters. FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

(Reuters) – Sterling hit its highest level against the euro since 2016 on Thursday but weakened against the U.S. dollar as traders weighed the impact of Russia’s invasion of Ukraine on monetary policy.

The Bank of England remains likely to hike its interest rate for a third consecutive meeting this month but expectations of a rate hike from the European Central Bank by the end of the year have declined since Russia invaded Ukraine a week ago.

Sterling rose to 82.76 pence against the euro at the start of London trade to its highest level since July 2016.

ING’s Global Head of Markets Chris Turner said sterling might also be being supported as Britain-based energy companies looking to cut their exposure to Russia.

“It will also be hard to know, but some GBP buying/hedging relating to the divesting of Russian assets in the oil and gas sector may be helping GBP too,” Turner said.

BP (LON:BP) said this week it would exit its stake in Russian state-controlled energy firm Rosneft, while Shell (LON:RDSa) said it intended to exit its partnerships with entities of Russian gas company Gazprom (MCX:GAZP).

Elsewhere, Britain’s services sector expanded at its fastest pace since June, according to the final IHS Markit/CIPS services Purchasing Managers Index.

Against the dollar, sterling was down 0.2% to $1.3375 as the dollar was supported by Wednesday’s comments from Federal Reserve Chair Jerome Powell in which he reiterated his support for a 25 basis point interest rate hike this month.

Sterling hits highest since 2016 against euro, falls versus dollar

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