Sterling sharpens decline to 37-year nadir

Sterling declined in European trade for the second straight session against dollar, hitting 37-year lows on economic recession concerns in the UK and doubts about the pace of policy tightening by the BoE this week. 

The dollar hit fresh 20-year highs against a basket of major rivals ahead of the Federal Reserve's policy decisions, expected to hike interest rates by 75 basis points. 

GBP/USD fell 0.6% on Wednesday to 1.1304, the lowest since 1985, after losing 0.4% yesterday, the third loss in a row as US treasury yields spiked to fresh highs. 

Recession 

Economists warned that the UK economy is already in a state of recession, after UK retail sales tumbled past estimates in August, an important indication for consumer health. 

Additionally, such a spate of negative data are casting doubt on the Bank of England's policy decisions this month, and whether it'll hike rates by 50 or 75 basis points. 

An aggressive move by the BoE would contradict a new budget by the UK government to support the economy and easy costs of living for citizens. 

The Dollar

The dollar index rallied over 0.6% on Wednesday for the second straight session, hitting 20-year highs at 110.87 against a basket of major rivals. 

Later today, the Federal Reserve will announce its policy decisions, expected fully to hike rates by 75 basis points to 3.25%, the third such increase in a row. 

And there's a 19% chance the Fed might actually raise rates by 100 basis points, heading for 4.5% by March 2023. 

Estimates

We expect the pound to keep weakening against the greenback, potentially giving up 1.13 for the first time since 1985 and heading for 1.12.