The US dollar strengthened over the pound by 1.31 cents on Friday as falling US stocks saw the dollar’s safe haven demand increase. At the same time it was announced that the UK’s gross domestic product, the size of the economy, shrank by 1.6% in Q4 2008 and by 2% in the year. This was the largest quarterly contraction since 1980 and saw the pound sold off as fears resurfaced about the health of the British economy. Comments from senior Russian central bank staff and the managing director of the IMF supported the view that the dollar would remain the world’s reserve currency for some time and this gave the greenback a boost.
Over the weekend the pound fell a further 0.89 cents against the dollar to open at the 1.4231 level, and the greenback has continued its march during today’s trading. Investors have become risk averse ahead of this week’s G20 meeting in London and news that the US government task force has rejected the turnaround plans of General Motors and Chrysler. Later today M4 money supply, mortgage approvals and net lending to individuals data will be released in the UK, while there are no major economic announcements due in the US.
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