Daily currency report

Goldman Sachs downgraded the shares of Citigroup, forecasting that the banking giant's losses would rise to a total of $15 billion, provoking another US dollar sell-off.

GBP

The pound lost ground again versus the other major currencies as weak housing data and concerns about UK banks' exposure to the credit crunch continued to undermine support for sterling. Trading is likely to be thin with the minutes of the last BoE meeting due for release.

USD

By downgrading Citigroup shares, Goldman's have effectively confirmed investors' fears that further losses are in the pipeline and that the US may be heading towards a full-blown recession. While Citibank will be able to withstand the heavy losses, the resulting tightening of borrowing conditions from the banks is expected to squeeze the overall economic growth, acting in a similar way to a CB rate hike.

EUR

The euro ended the session up versus the dollar and well-supported against both sterling and the yen. The potential for higher yields has been the root cause of the euro's strength, with traders still convinced that interest rates are likely to either rise or stay on hold for the foreseeable future. The euro now stands at a record high on a trade weighted basis, criticised from major politicians who fear damaging the zone's key export sector.

JPY

The yen continued its recent rally and has a firmer footing against both the dollar and sterling. Spurring the currency on was Citigroup's news which prompted investors to reduce their riskier positions and most notably pull out of carry trades made against the higher yielding currencies.