Sterling rebounds as dollar rally goes into reverse

© 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

LONDON (Reuters) – The British pound ticked higher against the U.S. dollar on Wednesday, moving just above the November 2020 lows it touched during the previous session as the greenback rally triggered by Russia’s invasion of Ukraine paused.

European stock markets are staging a tentative rebound after four straight sessions of heavy losses as investors weighed the financial implications of massive Western sanctions against the Russian economy.

The pound was up 0.29% at $1.3140 at 0852 GMT while the dollar index lost 0.40% against its rivals.

But the pound retreated 0.28% to 83.37 pence against the battered euro, stepping away from a 5-1/2 year high on Monday.

“Technically, EUR/GBP is still in a downtrend but it’s bounced off the low at 0.8200 and we see scope for further retracement, with a dovish ECB fully priced for tomorrow”, wrote Elsa Lignos, global head of FX strategy at RBC Capital Markets.

Diverging policy expectations from the Bank of England and the European Central Bank have propped up the pound against the common currency in recent weeks.

Money markets are pricing a total of 153 basis points of interest rate hikes from the BoE before the end of the year with a hike next week. Meanwhile, a meagre 28 points for the ECB in cumulative rate hikes is priced for the remainder of 2022.