Sterling posted strong gains, hitting a six-week high against the dollar after British data showed an unexpected rise in consumer price inflation. The dollar rose against the yen and euro as investors concluded a US plan to remove bad loans from banks' balance sheets would do a lot to help the US economy recover sooner than elsewhere, while the single currency was under heavy pressure as policymakers suggested that interest rates in the region could fall further.

Sterling

Sterling rallied broadly after inflation unexpectedly rose in February to an annual rate of 3.2 per cent, confounding expectations that it would ease to 2.6 per cent. However, this has been seen as a temporary move due to sterling's recent weakness. Markets reacted violently, with the pound jumping to a six-week high against the dollar and UK government bond futures tumbling sharply.

US Dollar

The dollar rose sharply as a US plan to cleanse banks of toxic loans improved sentiment towards US assets. Federal Reserve Chairman Ben Bernanke made a rare joint appearance with Treasury Secretary Tim Geithner, as they called for new powers that would allow federal regulators to grab control of ailing non-bank financial institutions, such as AIG.

Euro

Data out later this week may show that the German business confidence probably fell to its lowest level in more than 26 years, indicating that Europe's largest economy is heading deeper and deeper into recession. On the back of this forecast, the euro has lost ground against both the dollar and yen, and, if the IFO survey were to come in worse than forecasts, the euro could be vulnerable to yet another sell-off.

Japanese Yen

The global economic slowdown continues to be a major problem for the Japanese economy as demand for Japanese cars and electronics disappear, and Japan posted another record drop in its exports for February.