By Yasin Ebrahim

Investing.com – The pound slumped on Tuesday, adding to losses from a day earlier, as traders continue to unwind their bets for aggressive Bank of England rate hikes amid growing concerns about the UK economic outlook as inflation rages on.   

To $1.2580, the decline was 1.3%

“[W]eak retail sales and consumer confidence numbers highlighted that elevated inflation is biting for the consumer,” NAB Markets Research said in a note.

Market participants are now questioning their expectation that the Bank of England will continue to hike rates aggressively because of negative data.

“Tightening expectations for the 5 May BoE meeting have dropped backed to 29bp from 38bp early last week,” ING said Tuesday.

The central banking system is stuck between two rock walls. As aggressive inflation control moves risk tipping the economy into a recession, it becomes increasingly difficult for the bank to stay afloat.

“We are now walking a very tight line between tackling inflation and the output effects of the real income shock, and the risk that that could create a recession and pushes too far down in terms of inflation,” Bank of England Governor Andrew Bailey said last week. 

The need to get inflation back to the 2% target, however, is expected to continue to drive the central bank’s monetary policy approach as bets on the Bank of England raising rates to around 2.25% by year-end remains intact.

The path to the future for the Pound, especially in comparison with the Dollar, seems lower rather than higher.

“Sterling continues to trade on a fragile footing … [m]ost now feel that GBP/USD has to test 1.2500, and 1.2850 will now act as strong resistance – should it get that high,” ING added,