Pound tumbles as BoE warns of a difficult year for the UK economy

The pound experienced a sharp sell-off on Tuesday, with GBP exchange rates hitting a two-week low in response to the Bank of England’s (BoE) gloomy outlook for the UK economy.

Sterling appears to be holding its ground so far today however, with GBP/EUR rangebound at €1.1328 and GBP/USD flat at $1.2299. GBP/CAD and GBP/NZD are holding steady at C$1.7436 and NZ$2.0564 respectively, while GBP/AUD retreats to AU$1.9432.

Coming up today, the UK’s consumer price index could put additional pressure on the pound as economists forecast inflation will have slowed last month.

What’s been happening?

The pound tumbled during yesterday's trading session after BoE chief economist Andy Haldane warned the UK economy faces a modest contraction in the first quarter and an even sharper fallout in Q2.

Haldane also suggested any rebound later in the year is likely to be slow, with consumers potentially ‘reluctant to spend too vigorously or go out and socialise immediately after coronavirus restrictions are relaxed.’

At the same time, the Office for National Statistics (ONS) published the UK’s latest job’s report. Although unemployment claims rose at a far more modest pace than expected this failed to provide much support to Sterling.

In the Eurozone, Germany’s latest ZEW survey gave the euro a leg up on Tuesday, after economic sentiment in the bloc’s largest economy mounted a surprise comeback this month.

Meanwhile, the US dollar trended higher through yesterday’s European trading session as the collapse in US oil prices and concerns over the health of North Korean leader Kim Jung Un prompted skittish investors to favour the safe-haven currency.

What’s coming up?

It’s safe to assume the coronavirus crisis will remain a key catalyst of currency movement as the week continues.

This may benefit the US dollar so long as investors remain concerned about the eventual impact of the pandemic on the global economy.

The UK’s latest CPI figures will also be in focus today. A slowing of inflation in March is unlikely to offer much support to the pound.

While Eurozone data is thin on the ground, EUR investors will be looking to Thursday’s summit of EU leaders. Will the meeting help to dispel or underline concerns about EU unity?