Sterling skidded to its lowest in nearly 12 years on a trade-weighted basis on Friday, falling against the dollar and euro after a report showed Britain's economy unexpectedly stalled in the second quarter. Investors dumped the pound when a gross domestic product (GDP) reading was revised to show it was unchanged in the three months to June from an initial estimate of 0.2 percent quarterly growth.
Analysts had forecast a revision to 0.1 percent growth. That was the economy's worst quarterly performance since the second quarter of 1992 when it was in the throes of its last recession. "Today's data increases the chance of a recession in the UK, so that's why sterling is under considerable pressure and that's why we think sterling will remain under pressure," said Antje Praefcke, currency strategist at Commerzbank.
At 1418 GMT, the pound was down 1.1 percent on the day at $1.8586, having earlier plumbed a low of $1.8550. The euro climbed 0.5 percent to 79.69 pence after hitting a one-week high of 79.88 pence.
On a trade-weighted basis, the pound dropped to 90.60, a level last seen in late 1996. Stop-loss selling and other technical factors probably contributed to sterling's steep slide, according to traders, who noted the reaction in short sterling interest rate futures was far more subdued. "We think the flow of news is going to continue to be negative for sterling," said Adarsh Sinha, currency strategist at Barclays Capital, which is expecting the euro to rise to 82 pence over the next three months.
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