May 14, 2020 / 8:58 AM / 23 days ago

CORRECTED-UPDATE 1-Pound falls below $1.22 for the first time in more than 5 weeks

(Corrects quote in paragraph 9 to refer to figure “above” level of 1.2166, not “about” that level.)

By Elizabeth Howcroft

LONDON, May 14 (Reuters) - Sterling fell below $1.22 on Thursday - its lowest level in more than five weeks - as a combination of a stronger dollar and weak UK economic data hurt the British currency.

The dollar rose against a basket of comparable currencies on Wednesday after Federal Reserve Chair Jerome Powell squashed growing speculation about negative interest rates in the United States and warned of an “extended period” of weak economic growth.

Britain’s economy shrank by a record 5.8% in March as the coronavirus crisis escalated and the government shut down much of the country, according to Wednesday’s official GDP data.

An even bigger hit is expected in the coming months. The Bank of England said last week that the contraction of the economy in the April-June period could approach 25% and lead to the largest annual decline in more than three centuries.

Versus the euro, the pound hit a six-week low on Wednesday and held close to these levels on Thursday morning, last at 88.57 pence per euro.

Against the dollar, it was last at $1.2214, down 0.2% since New York’s close, having hit a low of $1.2182 just before 0700 GMT.

The pound is in its fourth consecutive day of losses and is the worst performing G10 currency so far this month, having fallen more than 3% since the end of April.

“We’re getting a few clients asking about whether we’re going to return below $1.20 - that’s the kind of concern that some people are starting to have again,” said Kenneth Broux, FX strategist at Societe Generale.

“$1.2166 is really for me the line in the sand for cable - we have to try and close above that level this week and then we have a fighting chance of clawing our way out of trouble,” he added.

Short bets have been building up over the past ten weeks, according to weekly futures data.

The UK’s death toll from COVID-19, the disease caused by the new coronavirus, has topped 40,000, by far the worst yet reported in Europe.

The government was widely criticised when plans to ease lockdown measures, announced on Sunday and Monday this week, left people confused about whether or not they could go to work.

The country is racking up new debt at a furious pace: it is due to issue 180 billion pounds of government debt between May and July, more than previously planned for the entire financial year.

Also weighing on the pound are seasonal factors - May is typically the pound’s worse month - and uncertainty over ongoing Brexit negotiations.

Markets are also starting to price in the possibility of negative interest rates in the UK.

The Bank of England’s Governor Andrew Bailey said on Wednesday evening that the bank can help spread the cost of coronavirus to society over time, adding that Britain had choices to make over whether more austerity would be needed.

Bailey is due to speak in a webcast at 1030 GMT on Thursday. (Reporting by Elizabeth Howcroft; Editing by Saikat Chatterjee and Peter Graff)

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