LONDON (Reuters) – Sterling fell below $1.25 on Tuesday for the first time in a week and reached a 14-day low against the euro after data showed Britain’s economy was recovering more slowly than forecast.
Gross domestic product rose by 1.8% in May after falling by a record 20.8% in April, the Office for National Statistics said, well below forecasts in a Reuters poll.
“You saw sterling moving lower almost immediately after the announcement and it was a big disappointment and I think that it’s also the realisation that maybe the V-shaped recovery doesn’t apply to the UK to the same extent,” said Morten Lund, an analyst at Nordea. (Graphic: UK GDP, https://fingfx.thomsonreuters.com/gfx/mkt/oakveawrjvr/Pasted%20image%201594719929537.png)
Adding to fears was a warning from authorities that another, more deadly COVID-19 wave could kill up to 120,000 Britons over the winter.
The pound touched a low of $1.2485, down 0.5% on the day <GBP=D3>. It slipped 0.7% to the euro at 91.03 pence <EURGBP=D3>.
Broad dollar weakness has allowed sterling to gain around 0.7% versus the greenback this month but against the euro it has lost 0.5% since the start of July.
Consumer data also indicated a tentative recovery. The British Retail Consortium said retail sales values rose by 3.4% in annual terms in June, and Barclaycard said overall consumer spending fell 14.5% in annual terms in June, the smallest decline since lockdown began.
Money markets price in the Bank of England’s cutting rates below 0% only next March. But government two-year bond yields plumbed a record low around minus 0.16% <GB2YT=RR> and 10-year yields slipped 2.5 basis points <GB10YT=RR> to 0.14%.
FTSE mid-cap shares, which tend to be mostly domestically oriented, fell 1.6% <.FTMC> versus a 0.6% decline for the exporter-laden FTSE100 <.FTSE>.
Investors are also waiting for more news on Britain’s negotiations with the European Union on concluding a trade deal for the post-Brexit period. Britain left the bloc on Jan. 31, with a one-year transition period to iron out a future relationship.
“My feeling is the market is not fully pricing in the likelihood of a hard Brexit,” said Colin Asher at Mizuho.
“There has been very little progress on negotiations and even if there is a deal, there’s not much time to put a lot in it.”
(Reporting by Maiya Keidan, editing by Larry King and Ed Osmond)