Daily currency report

The dollar fell as investors assessed the likelihood of an earlier-than-expected interest rate hike in the United States. Elsewhere the euro climbed, reversing previous losses suffered after an unexpected fall in German industrial output. Sterling rose against both the euro and the dollar, helped by further signs of a stabilisation in the UK housing market which fanned renewed optimism that the economy may be over the worst.

Sterling

Sterling recovered from a two-week low after data showed a stabilisation in the UK housing market. There was an air of relief as the UK's potentially damaging political situation seems to have calmed for now and this also helped bolster the pound.

US Dollar

The dollar continued to be sold off, as investors questioned whether the economy had improved enough to justify talk of a Federal Reserve rate hike by the end of 2009. Many investors are waiting for the release of the Fed's Beige Book of regional economic conditions, which may give further clues as to the likely movement of US interest rates over the course of 2009.

Euro

The euro extended gains against the US dollar due to speculation regarding the state of the US economy and the potential of a US interest rate rise by the end of the year. The fragility of the world's largest economy has made markets question the potential returns of the safe haven currency instead choosing to back the euro with its higher rate of interest.

Japanese Yen

The yen showed little reaction to news that core Japanese machinery orders unexpectedly slid 5.4 per cent in April, because it did not alter views that the economy appears to be over the worst of its slump.