UPDATE 1-Weakening economic data sends sterling to new lows against dollar and euro

Updates throughout

By Joice Alves

May 12 (Reuters) – Sterling fell to a fresh two-year low versus a strengthening U.S. dollar on Thursday after a slew of economic data pointed to the weakening of the economy.

Britain’s economy unexpectedly shrank 0.1% in March after a slump in car sales due to supply-chain problems. nL5N2X427Z

Data also showed British employers added permanent staff last month at the weakest rate in more than a year suggesting the labour market might be cooling, according to a survey that will be noted by the Bank of England as it assesses inflation pressures. nL5N2X35ZJ

“The dollar strength can explain some of the weakness in cable but with euro/sterling testing the water above the 0.86 level this morning, it is clear that the pound is under pressure,” said Jane Foley, head of FX at Rabobank London.

“The 0.1% month on month drop in UK March GDP highlights the loss of momentum in the economy since the start of the year as higher inflation bites.”

By 0758 GMT, the pound GBP=D3 was down 0.4% at $1.2198 against the dollar, after touching its lowest level of $1.2181 since May 2020 minutes earlier.

Sterling was little changed, up 0.1% on the day at 85.75 pence versus the euro EURGBP=D3, but it had fallen to 85.18 pence at 0606 GMT, touching its lowest level against the single currency since October 2021.

The Bank of England will have to push borrowing costs higher to control fast-rising inflation, but its four interest rate increases since December are having an impact on the economy, Deputy Governor Dave Ramsden told Bloomberg News. nFWN2X407I

“Hawkish remarks from Ramsden are a reminder of the stagflationary theme and have offered no respite to the battered pound,” Foley added.

Adding pressure on sterling, the dollar hit a two-decade high after U.S. inflation moderated less than markets had expected, keeping the Federal Reserve on course to tighten policy aggressively. nL2N2X40CO

(Reporting by Stefano Rebaudo; Editing by Danilo Masoni and Clarence Fernandez)

((stefano.rebaudo@thomsonreuters.com ; +39. 0266129431; Reuters Messaging: stefano.rebaudo.thomsonreuters.com@reuters.net ));))