Daily currency report

The sterling bounced off earlier two-month lows against the dollar and hit session highs versus the euro after British consumer price inflation fell by much less than expected. Meanwhile, the euro fell to its lowest level in two and a half months against the dollar after Moody's credit rating agency threat. The dollar and yen gained against most of their major counterparts as stock markets fell, making the US and Japanese currencies attractive.

Sterling

The sterling recovered some of its losses against the dollar as British inflation fell by much less than expected in January, taking the annual rate down to three per cent from 3.1 per cent in December. Analysts had forecast that the annualised rate of inflation would actually have dropped to 2.7 per cent, and cited the weakness of sterling as one of the factors contributing to the persistently high number.

US Dollar

The US dollar emerged from the long holiday weekend broadly stronger, hitting its highest levels in two months against the euro and a basket of other major currencies. The moves came as weaker global stocks and sentiment boosted the safe haven appeal of greenback.

Euro

The single currency was unable to hold onto initial gains made following better than expected German investor sentiment data, which rose sharply over the course of the last month. The euro came under renewed selling pressure later in the session after Moody's Investors Service announced it may cut the ratings of several banks with units in Eastern Europe, adding to concern financial turmoil will deepen.

Japanese Yen

Both the yen and the Nikkei stock market weakened as financial shares sank amid worries about European banks and credit concerns. The fall in shares coincides with a rapidly weakening economy and increased political uncertainty after the finance minister resigned.