Hopes that the UK had emerged from recession were dashed as the preliminary reading of Q3 GDP showed that the British economy had unexpectedly contracted. Market reaction was immediate as investors dumped the pound on fears that the Bank of England will now be obliged to pump additional billions of pounds into the economy. It was a different story in mainland Europe, however, as German data showed that business confidence in the zone's largest economy now stands at a 13-month high. There was also good news from Germany's manufacturing sector, which returned to growth following four months of contraction. The combined data was enough to send the euro higher against both the US dollar and sterling. There was also better news from across the pond as sales of existing homes in the US posted a 9.4 per cent increase in September.

Sterling

Five successive days of gains against the majors came to an abrupt end as sterling tumbled across the board when official data showed that the British economy unexpectedly contracted during the period from July-September. The data has also increased the likelihood that interest rates will remain close to the current record low of 0.5 per cent as the bank attempts to stimulate the economy. If confirmed, both moves are likely to keep sterling under pressure in the short and medium term as they provide little incentive for investors to back the pound.

US dollar

The US dollar starts the week higher against sterling, but under pressure against the euro as improved risk appetite and rising stock markets continue to lure investors away from the greenback.

Euro

A busy session packed with economic data saw the euro surge higher against almost all the other major currencies. The single currency was the principal benefactor of weakness in sterling while data from the 16-member trading bloc also continued to impress.

Japanese yen

The Japanese yen remains trading weaker against the other major currencies as rekindled risk appetite continues to tempt investors out of the safe-haven yen.