The British Pound has come under pressure as the U.K. economic recession continues to deepen.

Traders will have to decide whether real risks of US dollar devaluation outweigh those of EMU instability.

Through the shorter-term, traders will keep a close eye out for the coming week’s key European inflation and investor confidence results.

Wide European sovereign debt spreads underline the state of unease for many member countries, and ongoing fears of political fallout from the financial crisis bodes poorly for the euro itself.

A sizeable trade balance surplus represents one of the Japanese yen's most important sources of support.

The upcoming week will bring an important string of forward-looking economic data and paint a much clearer picture on the relative health of Euro Zone economic fundamentals.

Positive reactions to bearish financial market developments leave the yen in an ideal position to benefit from deterioration in risk appetite.

Fundamental outlook for the US economy remains poor, and such bearish sentiment would normally be enough to send the dollar significantly lower against major counterparts. Yet it is clear that markets are currently not normal.

How bleak is the outlook?

The US dollar finished the week broadly higher against major forex counterparts, as flare-ups in financial market tensions led to aggressive buying of the safe-haven US currency.