Daily currency report

The sterling was able to claw back many of Monday's losses against the US dollar although traders remained reluctant to back the pound too heavily prior to the Bank of England rate decision. Markets were also reassured by measures announced by both the Japanese and the Australian authorities to inject additional liquidity into their respective economies. The Bank of Japan will be buying up stock in troubled banks, and the Australian government plans to spend some $42 billion on infrastructure in order to help the economy and create jobs.

Sterling

The sterling shrugged off weak manufacturing data to end the session higher as investors were buoyed by comments from the Chancellor, Alastair Darling, as well as improved global stock markets. Against the euro, however, the sterling remained under pressure as the economic fundamentals and the prospect of a diminishing interest rate yield continued to weigh on the pound.

US Dollar

The dollar headed lower across the board throughout trading as surprisingly strong pending home sale figures prompted a rebound in equity markets. Like existing home sales figures, released last week, pending home sales increased in December by 6.3 per cent as buyers were seen coming into the housing market to take advantage of depressed house prices.

Euro

The single currency held its ground against the greenback as a very mild rise in risk appetite offset more negative economic news from the eurozone. Declining activity in Germany, whose slowdown appears to be accelerating, is likely to drag overall eurozone activity lower in the coming months.

Japanese Yen

The Bank of Japan unveiled its latest plan to help stabilise the troubled economy and financial system with an $11 billion plan to buy depressed shares held on banks' portfolios. The Bank of Japan said the biggest risk to Japan's financial system was not from credit exposure but rather volatility in share prices.