Extending early Wednesday's downtrend, the pound tumbled to new multi-day lows against its US and Japanese counterparts after a final report showed that the UK economy contracted more than initially estimated in the fourth quarter of 2008.

Against the euro and the franc, the pound fell to 4-day and 2-day lows in early European deals. But the UK GDP report released at 5:30 am ET did not show any major impact on these currencies.

The UK economy contracted 1.6% sequentially in the fourth quarter, revised down from a decline of 1.5%, a report from the Office for National Statistics showed. The economy entered its first recession since 1991.

Year-on-year, GDP was down 2% in the fourth quarter. According to the initial estimate, the British economy had fallen 1.9%. For the whole year 2008, GDP rose 0.7%, unrevised from the previous estimate.

Another report showed that UK's current account deficit narrowed to GBP 7.6 billion in the fourth quarter of 2008 from a revised deficit of GBP 8.2 billion in the previous quarter. Economists had expected deficit to contract to GBP 5.9 billion, while the third quarter shortfall was revised from a GBP 7.7 billion deficit. The fourth quarter deficit was equivalent to minus 2.1% of GDP compared with minus 2.3% in the previous quarter.

The pound slumped to an 8-day low of 1.4296 against the dollar during early deals on Friday. The next downside target level for the UK currency is seen at 1.42. At yesterday's North American session close, the pound-dollar pair was quoted at 1.4460.

Against the yen, the pound declined to a 4-day low of 139.98 in early trading on Friday. This may be compared to Thursday's closing value of 142.81. If the pound weakens further, it may likely target the 139.5 level.

The yen advanced despite reports showed that Japan's consumer prices stalled in February and retail sales tumbled the most in seven years, suggesting the economy was edging toward deflation. Consumer prices in Japan posted little or no change for the year to February. The government reported that its core consumer price index was unchanged in February from one year earlier, while the overall CPI was down 0.1 percent on year. The data showed overall inflation was down 0.3 percent compared to one month earlier.

The information triggered warnings from analysts that Japan faces deflation, but Finance Minister Kaoru Yosano reacted Early Friday saying it was too early to conclude that deflation was already occurring. I believe it is too early to describe the 0.1 percent decline as deflation, Yosano told reporters in Tokyo.

Another report showed that retail sales in Japan plummeted by 5.8 percent in February when compared to a year earlier. The decline was the sharpest in 7 years and the 5th straight month of lower retail sales.

The pound, which closed yesterday's trading at 1.6301 against the Swiss franc dropped to a 2-day low of 1.6228 at 2:30 am ET Friday. Thereafter, the pound attempted to reverse direction but pulled back again shortly and the pair is now worth 1.6270 with 1.619 seen as the next target level.

The pound slipped to a 4-day low of 0.9420 against the euro at 5:20 am ET Friday. If the pound falls further, support is seen around the 0.9455 level. The euro-pound pair was worth 0.9359 at yesterday's North American session close.

The German January import price index, French final fourth quarter GDP, Italian and the Euro-zone industrial orders report for January, which were released today likely influenced the euro.

Turning to the US, the Bureau of Economic Analysis is due to release its personal income & outlays report for February. Economists estimate the report, which is due out at 8:30 am ET, to show that personal income fell 0.1% during the month. On the other hand, personal spending is expected to have risen 0.3% in the month.

The final reading of the University of Michigan's consumer sentiment index for March is due to be released at 10 am ET. The report is expected to show that the consumer sentiment index edge down to 56 from the mid-month reading of 56.6.

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