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Sterling still positive versus dollar despite fading risk appetite

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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

By Stefano Rebaudo

(Reuters) – Sterling rose against a weakening dollar and fell versus the euro on Monday as hopes for a diplomatic solution to the Russian-Ukraine standoff boosted risk appetite.

The euro rallied, while safe-haven currencies, including the greenback, lost ground after a recent rally amid worries about a Russian invasion.

U.S. President Joe Biden and Russian President Vladimir Putin have agreed in principle to a summit over Ukraine, the French leader Emmanuel Macron said on Monday.

The pound was up 0.3% against the dollar at $1.3633, just off its highest level since Jan. 20 at $1.3643.

It was down 0.1% against the euro at 83.39 pence.

“Because the markets are already very nervous due to high inflation, rising interest rates and upcoming rate hikes, the Ukraine-Russia conflict is temporarily acting as an amplifier of market movements,” Moritz Paysen, a foreign exchange and rates analyst at Berenberg, said in a research note.

Investors are focused on data on UK PMI due at 0930 GMT, which might give further clues about future monetary tightening by the Bank of England.

“After a set of supportive data releases for the pound last week, we expect to see some quite solid UK PMIs today, bolstered by falling sickness rates and a return to the workplace,” ING analysts said.

Data showed that British consumer prices rose at the fastest annual pace in nearly 30 years last month, reinforcing the chances that the BoE will raise interest rates for the third meeting in a row.

Money markets are currently pricing a 65% chance for a 50 bps rate hike in March. [IRPR]

“Weaker PMI surveys in the UK may limit a GBP-USD rebound back above 1.36, while probably offering EUR-GBP some support above 0.8350,” Unicredit (MI:CRDI) analysts said.

Recently the pound had steadied versus the greenback as investors took rising Russia-Ukraine tensions in stride to focus on relative UK-U.S. rate hike expectations, which they saw as pound-positive.

According to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday, the pound showed the first net long position since November.

“Away from geopolitics, one of the most remarkable events this week could be the likely announcement today that those catching COVID in the UK will no longer have to legally self-isolate from later this week and that we will move to a learn to live with the virus regime,” Deutsche Bank (DE:DBKGn) analysts said.

Prime Minister Boris Johnson will outline on Monday his plans for living with COVID and has said that he aims to scrap the legal requirement to self-isolate for people who test positive for the coronavirus.

Sterling rises against dollar as hopes over Ukraine boost risk appetite

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