The US economy contracted in the fourth-quarter of 2008 at its sharpest pace since 1982, recording its first back-to-back declines since 1991. However, the year on year fall of 3.8%, was less severe than had been expected, limiting US Dollar losses against Sterling.

The US Dollar slipped against the Pound in the earlier part of the week, with improved optimism over the UK banking sector weakening demand for the Dollar.

The US Federal Reserve left interest rates unchanged at 0.25%, but confirmed that it expects economic activity to begin a recovery later this year, underpinning some support for the US Dollar. Other data showed US consumer confidence fell to record lows in January, whilst housing data also remained very weak.

The key Non-farm payrolls report on Friday is expected to confirm that the labour market lost more than 500,000 jobs in January, with the US Dollar liable to lose further support if the data is worse than expected. Prior to this, employment and service sector activity reports (Wednesday) might also influence expectations for the payrolls report and influence the US Dollar's direction.