Sterling started the week on the back foot, falling to five-month lows against the euro and dropping further against the US dollar. In the absence of any market data, the euro maintained its strong position in the markets which had been bolstered during last week's trading. In particular, the fall in the value of the pound against the euro sparked talk of parity between the two currencies while the US dollar continued where it left off last week, strengthening against a basket of currencies.

Sterling

Sterling continued to suffer, dragged to five-month lows against the euro and falling around 0.5 per cent against the US dollar. Much of the damage was done during last week's session after concerns were raised about the state of the UK's banking sector and talk of the Bank of England lowering the rates of interest paid on reserves held with the institute. However, yesterday's Bank of England quarterly report hit the pound once more as it said that foreign investors may not be willing to purchase UK assets, affecting the pound's long-term exchange rate.

US dollar

In the absence of major economic data and key events, the US dollar still continued to strengthen across the board. The greenback reached three-week highs against sterling, near two-week highs against the yen and fought back against the euro after reaching one-year lows last week.

Euro

The euro rose to five-month highs against sterling, but was pegged back slightly against the greenback. Economic data was non-existent in the eurozone. However, French President Nicolas Sarkozy said that he would urge fellow G20 leaders to introduce a special tax to reduce risky behaviour by banks.

Japanese yen

The markets in Japan were closed, however, the yen fell to near two-week lows against the USD as investors scaled back short-term positions ahead of the Federal Reserve decision on interest rates this week.