Pound drops for third day amid oil crisis

The pound was last down 0.2% on the day against the dollar at $1.3386 and weakened against the euro, which gained 0.1% to 86.3 pence

The pound headed for a third daily ​loss against the dollar on Thursday, as concern about a lasting rise in energy prices ‌and nervousness about the war in the Middle East drove investors into the dollar.

Bank of England Governor Andrew Bailey was due to speak later on Thursday, a week before the central bank’s rate-setting meeting.

As oil and natural gas prices have surged, so ​have investor expectations for inflation. Sterling, which has dropped by just 0.7% since the outbreak of the ​war on February 28, is one of the better-performing currencies among those belonging to ⁠countries that rely heavily on imported energy.

The euro and the won have shed 2% to 3%, ​while the Indian rupee and yen have dropped more than 1.5% each.

The euro has dropped 1.3% against the pound since the start of the war.

The pound was last down 0.2% on the day against the dollar at $1.3386 and weakened against the euro, which gained 0.1% to 86.3 pence.

Typically, ​higher bond yields and the prospect of higher interest rates tend to support currencies, which may have ​cushioned the pound, to an extent.

Money markets have swung wildly in the last two weeks. Traders’ assumption at the end of ‌February ⁠was for the Bank of England to deliver two interest-rate cuts this year. That has now flipped to a near-50% chance for one hike by December.

The European Central Bank could raise rates twice this year, based on swaps market pricing.

The aggressive repricing of ​BoE rate-cut expectations is ⁠providing some support to sterling, City Index strategist Fiona Cincotta said.

For now, the focus will remain on geopolitical developments and concerns over the war-driven surge in energy ​prices and inflationary pressures, she said.