Pound Declines As U.K. GDP Tumbles To 40-yr Low, European Shares Retreat

The pound dropped against its major counterparts in the European session on Tuesday, as the U.K. economy contracted more than initially estimated in the first quarter and persistent worries over the outbreak dampened risk sentiment.

Revised data from the Office for National Statistics showed that the UK economy contracted at the joint fastest pace since 1979 as measures taken to reduce the spread of coronavirus weighed on all sectors.

Gross domestic product fell 2.2 percent sequentially instead of 2 percent decrease estimated initially and followed a nil growth in the fourth quarter of 2019. The latest drop was the joint largest contraction since the third quarter of 1979.

On a yearly basis, GDP was down 1.7 percent in the first quarter, revised down from 1.6 percent estimated in May.

European stocks fell as fears about a surge in coronavirus cases around the world offset encouraging factory activity data from China.

World Health Organization chief Tedros Adhanom Ghebreyesu warned Monday that "the worst is yet to come."

The pound weakened to 1.2258 against the greenback, after rising to 1.2317 at 7:30 pm ET. The next possible support for the pound is seen around the 1.19 level.

The pound depreciated to 132.02 against the yen, from a high of 132.64 set at 10:00 pm ET. If the pound drops further, it may find support around the 129.00 area.

Data from the ministry of Internal Affairs and Communications showed that Japan jobless rate came in at a seasonally adjusted 2.9 percent in May.

That missed expectations for 2.8 percent and was up from 2.6 percent in April.

The pound reversed from an early high of 1.1713 against the franc, with the pair trading at 1.1669. The pound is likely to challenge support around the 1.14 level.

In contrast, the pound was mildly firmer against the euro, at 0.9129. The pound is seen finding resistance around the 0.90 level.

Preliminary data from Eurostat showed that Eurozone inflation accelerated in June as prices of energy decreased at a slower pace.

Inflation rose to 0.3 percent from 0.1 percent in May. Economists had forecast the rate to remain unchanged at 0.1 percent.

Looking ahead, Canada GDP data and U.S. S&P/Case-Shiller home price index for April and consumer confidence for June are set for release in the New York session.

Federal Reserve Chairman Jerome Powell will testify before the House Financial Services Committee in Washington DC at 12:30 pm ET.