Pound sterling hits two-month low over government instability and disappointing economic data

Downward trajectory continued after last week's GDP shock

The pound could fall further this week, analysts warned (Reuters)

The pound fell to a two-month low against the dollar on Monday afternoon as concerns around government instability in the wake of Amber Rudd’s resignation compounded the effects of disappointing GDP data published last week.

Sterling dropped 0.43 per cent to €1.3723 following Friday’s decline of more than 1 per cent after official figures revealed the UK economy almost slowed to a standstill in the first quarter.

The pound fell 0.9 per cent against the euro on Friday after the numbers showed UK GDP grew by just 0.1 per cent in the first three months of the year, much worse than expected despite analysts having priced in a slowdown due to the Beast from the East.

The figures have heightened fears that a much-anticipated May interest rate rise by the Bank of England might now be off the cards. “The Bank now appears highly unlikely to hike in May, and if the probability for such action continues to drift towards 0 per cent in the coming days, then the pound could remain under pressure,” said Marios Hadjikyriacos, an investment analyst at forex firm XM.

“As always, besides the Bank of England, the other key determinant for sterling will be any updates on Brexit, where the next negotiating round will begin on Wednesday.”

Meanwhile, the departure of Ms Rudd from the Home Office has also contributed to making the pound “a little shaky”, said London Capital Group’s Jasper Lawler.