LONDON: Sterling declined against the dollar but rose against the euro on Monday after Western nations imposed tough new sanctions on Russia for its invasion of Ukraine.
Western allies moved over the weekend to block the access of certain Russian banks to the SWIFT international payments system and announced plans to implement restrictions on the Russian central bank's international reserves.
Against the dollar, sterling declined 0.3% to $1.3375 at 0940 GMT as the dollar continues to be the preferred safe-haven during the market turmoil. Sterling was up 0.6% against a weakening euro at 83.58 pence.
Sterling recovers, but set for biggest weekly drop in 6 months
"GBP has been holding up surprisingly well - given that it is normally more sensitive to financial developments than others," ING Global Head of Markets, Chris Turner told clients.
"Investors will be interested to see whether BP's planned sale of its stake in Rosneft has any FX implications", he added.
Energy company BP said it plans to exit its Russian oil and gas investments, the most aggressive move yet by a company in response to Moscow's invasion of Ukraine.
The impact of the Russian invasion of Ukraine on the Bank of England's future path for interest rates continues to be a theme in the near-term.
"At least the Bank of England has set out its stall in reacting to stagflationary fears and today's surge in European natural gas will again edge the BoE towards hawkish positioning," ING told clients.
Bank of England policymaker Michael Saunders is scheduled to give a speech at the University of East Anglia on Tuesday.
Money markets are currently pricing in 25 basis point rate increase from the BoE in March.
In the meantime, data showed on Monday that business confidence in the UK rose by five points to a five-month high of 44, according to the Lloyds Business Barometer.
The survey of 1,200 companies also showed that 25% of businesses planned to increase wages by 1%-2% over the next 12 months, while 23% planned 2%-3% pay rises. The survey, however, was conducted during Feb. 1-15, before Russia's invasion of Ukraine.