The greenback strengthened against major currencies on Wednesday as the dollar's value as a safe-haven attracted investors who were disappointed by a report which showed that sales of existing homes in the U.S. dropped by 5.3%, compared to the market expectation of a rise of 1.1%. U.S. stock markets were unable to build on Tuesday's gains with the Dow ending the day down 80 points. Data released earlier in the day highlighted the negative outlook for Germany and the U.K. as both economies showed contractions in the fourth quarter of 2008.

Dollar rose again versus the yen to 97.79 (highest since November) with the Japanese currency also weakening against the euro and sterling (eur/jpy and gbp/jpy fell to intra-day lows of 125.16 and 141.81 respectively before recovering) after Japan's exports declined by 45.7% and the trade deficit widened to 952.6 billion yen in January from 322.3 billion yen. Public dissatisfaction towards the Japanese ruling party and Prime minister Taro Aso have also put pressure on the yen recently.

The euro fell from its European session high at 1.2900 against the dollar to 1.2690 on risk aversion as investors safe-haven greenback amid signs of renewed weakness in equity markets, however, the single currency traded inside a range of 1.2513-1.2992 over the last week. The dollar rallied from 1.1550 to 1.1743 versus the Swiss franc.

Sterling declined sharply on Wednesday to 1.4174 from an intra-day high at 1.4608 on active cross selling as comments fm MPC members Barker and Blanchflower weighed on the British pound. Kate Barker said that the pound's weakness may be beneficial to U.K. manufacturers while David Blanchflower speculated that the unemployment rate in the U.K. may reach 10% in 2009.

Data due out on Thursday include German Gfk index and unemployment data and eurozone business climate and economic sentiment indices.

U.S. durable goods orders are released at 13:30GMT with the report likely to show decrease of 2.5% in January following a fall of 3.0% in the previous month.