By Stefano Rebaudo

(Reuters] – Sterling crashed against a surging Dollar in its worst-ever day since March 2020 after investors rushed into safer-haven assets as a result of the Russian invasion of Ukraine.

The rain of missiles fell. Reports from Ukraine claimed that columns of soldiers were moving across the borders from Russia, Belarus, and landing along the coastline from the Azov and Black seas.

While safe-haven currencies like the U.S. Dollar and the yen were highly sought after, riskier currencies, such as sterling, fell.

The Pound fell 1.8% to $1.3302, the largest daily drop since March 2020. This was its lowest level since December 22, 22.

Kit Juckes, SocGen’s foreign analysts on forex said that sterling is a spectator.

Although the UK’s economic vulnerability is lower than that of the Euro zone it does not make us invulnerable. “I expect to continue trading within a fairly narrow range,” he said.

In choppy trading, sterling was 0.1% lower than the euro at 83.59pence.

The future narrative of interest rates was also on focus. Investor views were mixed.

Huw Pill, BoE Chief Economist, made another pessimistic comment Thursday. He said that the central bank would try to reduce fast-rising inflation in a measured way and not disturb the rest the economy.

Analysts at MUFG stated that “the Ukraine conflict” is likely to motivate market participants to reduce their expectations of tightening monetary policy from the major central banks.

They stated that they expected the U.S. and UK rate markets to keep their expectations higher in favor of 0.25-point increases being made at their March meetings.

Rishi Sunak, British finance minister, said that he spoke with Andrew Bailey from Bank of England on Thursday in order to maintain financial stability following Russia’s invasion.

Markets are pricing in a 50% chance that the BoE will raise its rate by 50 basis points (bp) in March. By year’s end, they fully anticipate a rate rise of 125 bps.

According to ING analysts, “We don’t think they will (BoE officials), want to push back against aggressive pricing of BoE cycles which are providing support for GBP and helping insulate against higher prices.”

In the wake of less hawkish statements by BoE Monetary Policy Committee representatives, UK rates market participants had reduced their expectations of a 0.50-point increase.

Andrew Bailey, BoE Governor, stated Wednesday that the markets shouldn’t get too excited about the possible scale of interest rates rises. Silvana Tenreyro, policymaker, said she believed there was a case for more modest tightening.