Daily currency report

The US dollar and Japanese yen have strengthened following reports that Japan slipped further into recession during Q3 than had been previously thought. The news served to reinforce fears that Japan is now facing its longest period of contraction ever and also sent worldwide stock markets tumbling.

Sterling

The recent decline of oil and energy prices sent producer prices tumbling in November, and this has consequently reignited fears that Britain may be entering a period of deflation. The news has also been seen as a green light to the Bank of England to continue its cycle of interest rate cuts.

US Dollar

The greenback was on the defensive as the US congress's commitment to bailing out the US auto industry restored a degree of confidence to equity markets. Also weighing on the dollar were comments emanating from President-elect Barack Obama, who pledged that he would seek to invest heavily in America's infrastructure in the most ambitious plans since the 1950s.

Euro

The single currency hit another all-time high against the sterling. However, the single currency remains under pressure versus the US dollar. According to the ECB's own forecasts, the eurozone is expected to contract by 0.5 per cent next year - the region's first full-year contraction since 1993.

Japanese Yen

Japan's government pledged to take further measures to support an economy that is in worse shape than analysts had predicted. Gross domestic product contracted at an annual 1.8 per cent pace in the three months up to September - significantly more than the 0.4 per cent reported last month. The news was greeted with gloom by financial markets and has increased pressure on the Prime Minister, Taro Aso.