Sterling declines to fresh two-year nadir

Sterling declined in European trade to fresh two-year lows against dollar for the third session on bearish outlook for the UK economy, while the dollar index hits 20-yeare highs as US 10-yeae treasury yields surpass 3%.

GBP/USD fell 0.7% to 1.2260, the lowest since June 2020, after closing down 0.2% on Friday following bullish US labor data.

Sterling lost 1.9% last week against dollar, the third weekly loss in a row amid a diverging policy landscape between the US and UK.

Bank of England 

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%.

Such extremely bearish forecasts are naturally hammering the pound against most major rivals, even as the markets expect nearly 8 more rate hikes in the next 18 months by the BoE, but such forecasts are shaken now.

The Dollar

The dollar index rose 0.5% on Monday for the third straight session, hitting 2002 highs at 104.19 against major rivals. 

The strong US labor data last week have bolstered the case for a 0.75% hike at the next Fed meeting to nearly 75%.

Sterling on the other hand is expected to fall even further, hitting 1.2 against  dollar soon enough.