The GBP/USD rate has hit a 2-year low today as market risk sentiment sours and UK growth figures miss expectations.

Increased fears over heightened global inflation levels amid China’s zero-Covid policy and the ongoing war in Ukraine are causing a flight to safety by investors. They’ve been seeking so-called ‘safe-haven’ assets (such as JPY and USD) and offloading perceived riskier ones (such as stocks and Sterling). Data on Wednesday showed US inflation (CPI) hit above estimates at 8.3% in April, and the European Central Bank have also been signalling increased concerns.

UK growth data (GDP) out this morning showed quarter-on-quarter growth of 0.8% versus an expected 1%. This vindicates the negative outlook portrayed by the Bank of England last week and increases concern there could be a recession in 2022, which is keeping Sterling on the backfoot. UK manufacturing and industrial production figures, also released this morning, showed a 0.2% contraction from the previous month. Furthermore, concerns over the Brexit Northern Ireland Protocol have been coming to the surface again with the UK threatening to revoke it and the EU stating they’re ready to suspend the whole Brexit deal if they do so.

As a result, the GBP/USD has continued its descent and has given back around 2-cents from yesterday’s high (now trading at a 2-year low!). The EUR/USD has lost over 1% from yesterday’s high and now trades at a 5-year low! The GBP/EUR continues to trade at subdued levels and around the lowest levels we’ve seen this year. Next up we have US producer price index figures out this afternoon which could impact the USD, however, on its own this figure is unlikely to change the bigger picture and traders’ minds about the inflation outlook.