Sterling steadies after post-Powell dive

By Joice Alves

LONDON (Reuters) - Sterling steadied on Wednesday after falling to an almost four-month low against the dollar as investors paused for breath after the U.S central bank chair said he is prepared for bolder rate hikes.

Sterling flattened at $1.1825 after briefly touching its lowest level against the dollar since November during Asia trading hours.

It sank 1.7% against the U.S. currency on Tuesday when Fed Chair Jerome Powell told U.S. lawmakers that the central bank was prepared to raise interest rates in larger steps.

Against the euro, sterling also levelled out at 89.15 pence, a day after touching its lowest point against the European single currency since mid-February.

The pound has slipped around 1.6% against the dollar so far in March, while the euro was just 0.3% lower versus the dollar.

The pound's higher sensitivity to risk is making it more vulnerable than the euro to Fed hawkishness, said Francesco Pesole, FX strategist at ING, adding that European Central Bank rate hikes expectations was also supporting the single currency.

"Euro/GBP faces upside risks every time the Fed’s hawkish messaging hits risk sentiment ... Incidentally, at the current juncture, the euro is looking more attractive than the pound, thanks to the ongoing hawkish repricing in ECB rate expectations and a more encouraging domestic outlook," he said.

Taking the Fed's lead, money markets are now fully pricing in a 25-basis-point increase from the Bank of England later this month. They are pricing a 50-bps increase from the ECB and the Fed at their next policy meeting this month. [IRPR]

BoE rate-setter Swati Dhingra said on Wednesday that it would be prudent to hold interest rates at this juncture, given that previous hikes in borrowing costs are yet to feed through into an already weak British economy.

Another BoE policymaker, Catherine Mann, warned that the pound could be vulnerable to other central banks' outlooks.

The Fed's Powell is back for more testimony from 1500 GMT, although prepared remarks are expected to be unchanged from those published on Tuesday.

(Reporting by Joice Alves; Editing by Mark Heinrich)