LONDON- Sterling steadied near a 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.
They sold off other riskier assets like stocks. The MSCI world equity index, which tracks shares in 45 nations, fell to its lowest level since May, 2021 on Monday.
NATO said it was putting forces on standby and reinforcing eastern Europe with more ships and fighter jets, in what Russia denounced as Western "hysteria" in response to its build-up of troops on the Ukraine border.
"Events in Ukraine and the global equity correction have shifted the focus from inflation (and) tightening over the last week and more towards a flight to safety," Chris Turner, Global Head of Markets at ING, told clients.
Additionally, markets are bracing for a Fed meeting this week that could signal the removal of its vast stimulus programme. The jitters sent the dollar higher against a basket of currency.
Sterling was flat versus the greenback at $1.3485 at 0930 GMT, not far from $1.3441, its lowest level since Jan. 3, touched in the previous day.
Versus a weakening euro, sterling edged up 0.3% to 83.73 pence, after sliding to its lowest level this year on Monday against the single currency.
Analysts were also taking the view that expectations for a Bank of England rate hike in February, which has granted support to the pound, were now fully priced in.
"The central banks in both the UK and the U.S. are set to hike rates this year, but I think expectations for the BoE have gotten a little ahead of themselves. Therefore, the potential for the BoE to deliver a surprise, which could push sterling meaningfully higher, is limited," said Dean Turner, UK economist at UBS Global Wealth Management.
(Reporting by Joice Alves, editing by Ed Osmond) ((Joice.Alves@thomsonreuters.com, Twitter @joiceal))