Sterling plunges after data show U.K. recession deepens
The dollar continued to benefit from more grim global economic data Friday, though it was well off its session highs as a slight rebound in U.S. stocks whetted investors' risk appetite.
The British pound earlier plunged to a 23-year low against the dollar, undermined by government data confirming the U.K. economy fell into a deep and potentially long-lasting recession in the final three months of 2008.
"The U.S. dollar and Japanese yen are higher against the major and most emerging currencies as they continue to benefit from the weak financial and economic environment and the ongoing deleveraging process," wrote currency analysts at Brown Brothers Harriman in New York.
When investors are risk-averse, lower-yielding currencies tend to rise, as the market shies away from -- or cashes out of -- riskier, higher-yielding investments.
While the main driver of the dollar's gains is the deleveraging process, other themes are also dollar-supportive, the Brown Brothers Harriman analysts said in a note to clients Friday.
These include "the probability that the relatively aggressive monetary and fiscal policy and the drop in oil prices will encourage an earlier recovery in the U.S."
Oil prices recovered in afternoon trading, as traders looking for a safe haven piled into hard assets. Erasing earlier sharp losses, crude oil for March delivery rose $2.80, or 6.4%, to end at $46.47 a barrel on the New York Mercantile Exchange. The contract was up 9% for the week. See Futures Movers for more on oil.
There was also progress on stimulus steps. Senate Finance Committee Chairman Max Baucus, D-Mont., announced a $275 billion tax cut and investment package that seeks to boost the economy and create jobs in green energy, highways and health-care industries.
His introduction of the plan comes after the House Ways and Means Committee approved a similar but smaller package on Thursday that also includes a $500-per-worker tax credit and numerous similar business tax breaks. See full story on House tax plan.
On Wall Street, major stock indexes ended mixed, though well off early deep losses. See Market Snapshot.
The dollar index , which tracks the dollar against a trade-weighted basket of six major currencies, rose to 85.534, still above 85.521 in late North American trading Thursday, though down from its Friday session high of 86.810.
The euro fell to $1.2977, down from $1.3009 late Thursday, but well above its Friday low of $1.2763. See real-time currency prices.
The dollar was slightly down against its Japanese counterpart, buying 88.80 yen, compared with 88.91 yen Thursday and well off a high of 89.59 earlier Friday.
The pound changed hands at $1.3797, up from a low of $1.3501 -- its lowest level against the dollar since 1985. Sterling was buying $1.3881 in late North American trading Thursday.
The euro gained ground on the pound as well, rising 0.3% to 94.00 pence.
Steep recession
The British pound extended its recent plunge after grim data.
The Office for National Statistics said U.K. gross domestic product contracted by 1.5% in the October-through-December period compared to the previous quarter, marking the steepest quarterly drop since 1980.
