The dollar and yen benefited from another bout of heightened risk-aversion, rallying sharply against the euro and sterling as a result of safe-haven flows. Both currencies will likely continue to reap the rewards from growing apprehension over the banking system and the extent and duration of the global economic recession.

The economic calendar today was light, with the release of the NAHB housing survey, which drifted lower to 8 in January versus 9 a month earlier. The housing index fell to its lowest level on record, with expectations of home sales over the next 6 months at 17 in January versus 16 from December. The Thursday session will see December building permits, housing starts and weekly jobless claims. Building permits are estimated to slip to 610k units, down from 615k units in November. Housing starts are also seen falling, down to 610k units versus 625k units a month prior. Meanwhile, weekly jobless claims are estimated to edge higher to 540k from 524k.

Pound Hammered

The sterling sell-off extended into Wednesday with steep declines across the board, plunging to multi-decade lows against the greenback at 1.3624. Plaguing the pound are fears over the stability of the UK banking system and whether the bail-out measures will ultimately succeed. The pound also sold-off sharply versus the euro and yen, collapsing to 0.9428 and 119.44, respectively.

Economic reports released from the UK overnight were largely in line with expectations. The November ILO unemployment rate crept up marginally to 6.1% versus 6.0% in the previous month, while the claimant count edged up to 77.9k from 75.7k, albeit less than forecast.

Cable slumped to its lowest level since 1986 at 1.3624. The pair has since clawed back above the 1.37-handle with interim resistance eyed at 1.3730, followed by 1.3765 and 1.38. Additional ceilings are seen at 1.3840, backed by 1.3860 and 1.39. On the downside, floors will emerge at 1.37, followed by 1.3650 and 1.3620. Subsequent support is seen at 1.36, backed by 1.3550 and 1.35.