The sterling rallied strongly as traders shrugged off soft housing data and a gloomy growth forecast from a UK business group, to pick up the currency at cheap levels following its recent slide. Many observers, however, feel the sterling's upside will be short-lived as the UK economy heads for a recession that is shaping up to be more severe than the downturns elsewhere in the industrialised world. Elsewhere, the dollar fell against most major currencies as data showed US manufacturing activity slumped and world leaders ended a weekend meeting with few concrete proposals for dealing with global recession. Meanwhile, the euro also struggled against the yen as fears about the world economy dulled investors' taste for risk.

Sterling (GBP)

The pound rose around two per cent against the dollar and euro, bouncing back from an all-time low against the single currency and a six-and-the-half-year trough versus the dollar struck last week. However, the pound is still on a downward trend and it gained little support from the Confederation of British Industry report.

US Dollar (USD)

The dollar dropped against the euro and the British pound as a contraction in New York state manufacturing added to evidence that the US economy has fallen into a recession. The US economy will contract 0.2 per cent in next year after growing 1.4 per cent this year, according to the median estimate in a poll of business economists taken by the National Association for Business Economics.

Euro (EUR)

The euro dropped against the sterling and the yen as figures were released showing Europe's trade gap remained close to a record in September as the impact of the global financial crisis weakened orders for goods from the region's biggest trading partners.

Japanese Yen (JPY)

The yen nudged lower against the dollar but was underpinned by risk aversion as Tokyo shares fell following a drop in US stocks on deepening concerns about a global recession.