Cable falls as economic outlook remains poor

Sterling fell sharply against the US dollar yesterday, losing more than 3 cents following GDP data which confirmed the UK economy shrank by an unrevised 1.5 percent in the last quarter of 2008, confirming Britain is in the midst of a deep recession. The dollar also gained support as investors sought its safe haven appeal following falls on Wall Street and more gloomy economic data. Data revealed US existing homes sales are at their lowest levels in almost 12 years, sparking fresh jitters about the economy and sending equities sharply lower.

The US dollar was also helped by the falling yen, amid growing concern about the Japanese recession. Usually the yen would be used as a safe haven currency during times of market volatility, but the current problems facing the Japanese economy have encouraged investors to move from the yen to the greenback.

There are no significant economic releases due from the UK today, while home sales, durable goods orders and jobless claims figures are released in the States this afternoon. President Obama will also be presenting his budget to Congress later today.

GBPUSD: 1 week chart. Click on graph to enlarge.