Sterling racked up its biggest one-day gain against a basket of currencies in nearly a year after UK policymaker comments prompted speculation the Bank of England may not extend quantitive easing. Elsewhere, the greenback fell after US data supported expectations the economy is recovering, raising optimism that interest rates in America will rise sooner rather than later.

Sterling

Sterling extended gains across the board as the pound rose to three-week highs against both the US dollar and Japanese yen as well as posting impressive gains versus the euro. Better than expected unemployment figures had already set the scene for a good performance and sterling immediately benefitted from Bank of England policymaker Paul Fisher who claimed quantitative easing was now having its desired effect in an upbeat assessment of the bank's asset purchasing scheme.

US dollar

The dollar rose against the yen and euro while dropping against sterling after US data supported expectations the economy is recovering. This raised optimism that US interest rates will rise from their record low sooner rather than later. Higher interest rates would increase the attractiveness of US assets and heighten demand for the dollars to buy them.

Euro

The euro fell after the European Central Bank published its monthly bulletin while the European Central Bank president, Jean-Claude Trichet, repeated the euro was not created to be a global reserve currency.

Japanese Yen

The yen succumbed to broad selling pressure as investors cut long positions. Improved confidence after US corporate earnings saw traders come out of safe haven currencies including the Japanese currency. The yen, which lost most ground during the New York trading session, continued to suffer from a rebound in risk appetite.