Sterling sharpens decline to two-year nadir after bearish data

Sterling declined in European trade for the sixth straight session against dollar, hitting two-year lows after bearish data from the UK, which cut chances of the cycle of rate hikes in Britain throughout 2020.

The dollar on the other hand jumped to fresh 20-year highs following forecast-beating inflation data last month.

GBP/USD fell 0.7% to 1.2165, the lowest since May 2020, after closing down 0.5% on Wednesday, the fifth loss in a row.

Bearish Data

UK economy grew 0.8% in the first quarter of the year, missing estimates of 1%, and down from 1.3% in the fourth quarter of last year.

On a monthly basis, UK economy contracted 0.1% in March, compared to a 0.1% growth rate in February. 

Such data cut down chances of several more UK rate hikes in 2022.

BoE Estimates 

Bank of England decided to hike rates by 25 basis points last week to 1%, the fourth increase in a row.

The members are preparing for another 25 basis points, however they warned from a recession if rates were increased by 0.50%.

It didn't stop at this, the BoE went as far as predicting an actual recession next year by 0.25%.

The Dollar

The dollar index rose 0.5% on Thursday for the sixth straight session, hitting a 2002 high at 104.54 against major rivals. 

The gains are bolstered by very high inflation data for the UK last month, paving the way for several more 0.5% Fed rate hikes this year. 

Estimates

As for the pound, analysts now expect it to fall as low as 1.2 while potentially even piercing that important barrier in the months to come.