Yahoo Finance Pound hits two-year low against dollar after UK economy contracts
The pound (GBPUSD=X) fell sharply against the dollar on Monday after disappointing GDP figures showed the UK economy shrank in April as households battled against the rising cost of living.
Sterling hit a two-year low against the greenback, declining as much as 1.4% to $1.2139, the lowest level since May 2020. It was down 1.3% to $1.215 at the time of writing.
Against the euro (EURGBP=X) it wiped out its gains, down 0.1% to 85p.
It comes as GDP shrank 0.3% in April according to the latest analysis from the Office for National Statistics (ONS), which reflects the impact of the 54% jump in the energy price cap in April.
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April’s contraction means Britain's economy is now just 0.9% larger than before the first pandemic lockdown in spring 2020, with services, manufacturing and construction all shrinking during the period.
This is the first time that all main sectors have contributed negatively to a monthly GDP estimate since January 2021, the ONS said.
"[The pound] fell below the 1.245 area which opens up the May lows at 1.2155," said Michael Hewson, chief market analyst at CMC Markets. "The key support lies between 1.1980 and the 1.2000 area. The 1.2450 area now becomes resistance."
Sterling's decline follows a sell-off in global equities, cryptoassets and currencies as economic and inflationary pressure heighten fears of a recession and interest rates raises.
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The yen (JPY=X) crashed to its lowest level since 1998 against the dollar as Japan's central bank continues to hold fire on lifting interest rates, despite tightening of monetary policy elsewhere.
The currency fell more than 0.5% to 135.19 per dollar on Monday morning after Friday's shock US inflation figures.
Meanwhile, the world's largest digital token bitcoin (BTC-USD) dropped 14.2% to $23,519, the lowest in 18 months.
Other cryptocurrencies also fell, with ether (ETH-USD) down 17% to $1,213, its lowest level since February last year.
Meanwhile, oil prices also fell amid the dire outlook. Global benchmark brent (BZ=F) was down 1.9% to $119.75 a barrel, while West Texas (CL=F) crude dipped 2% to $118.32 at the time of writing.
Watch: How does inflation affect interest rates?
