GBP Downward Spiral

The pound’s weakness against the dollar and the euro spells bad news for the British.

Fears over the UK economy are weighing on markets, causing sterling to sink below $1.20 on Tuesday, its lowest level since the start of the pandemic, before partly recovering on Wednesday.

Versus the euro, the pound is hovering near thirteen-month lows.

Fears have grown over the prospects for the UK economy after figures showed it shrank again in April for the second month in a row, with businesses feeling the impact of rising prices.

Inflation surging in the UK has pushed the BoE to hike its key interest rates at successive meetings and another move is expected after real wages were seen lower in this week’s employment release.

Inflation in the UK hit 9% in the most recent figures, driven largely by energy, food prices and fuel bills.

There is uncertainty over how fast the Bank of England – which is expected to raise interest rates again on Thursday – can tighten policy this year to tame inflation without further hurting the economy further.

Sterling also faces political risk such as uncertainty over the fate of the agreement with the European Union over Northern Ireland.

GBPEUR is at 1.16 at 10.45 GMT+3

GBPUSD is at 1.20 at 10.45 GMT+3

Be ready for today’s announcements from 14.00 GMT+3.

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