Daily currency report

Sterling is rocked by the news that the UK government will take a bigger stake in the Royal Bank of Scotland. RBS' shares fell sharply at the open on the back of a Daily Telegraph article reporting that the UK government will unveil plans this week to purchase £30 billion in shares to rescue the bank. The news served to further underline the fragility of the economic recovery, and in a week already packed with event risk for the domestic currency, the pound got off to a shaky start. The greenback ended a volatile week near the upper end of recent ranges against the majority of currencies. A sharp sell-off in stocks and commodities caused a broad pullback in risk appetite and saw investors return back to the relative safety of the US dollar and Japanese yen. The euro remains under pressure against a basket of currencies with Friday's data releases having limited impact on the single currency.

Sterling

The news that the UK government is buying a bigger stake in the Royal Bank of Scotland further highlights just how fragile the economic recovery is. Sterling closed last week at near week highs against the euro while remaining relatively well supported against the dollar.

US dollar

After investors took up safe haven positions in the greenback, the US dollar is in for a day with relatively light data, with manufacturing PMI and pending home sales up for release.

Euro

The level of unemployment across the eurozone rose to 9.7 per cent in September, the highest rate since January 1999. Further bad news came in the form of German retail sales which fell for the second consecutive month in September. The news provides yet further confirmation that the economic downturn continues to affect consumer spending.

Japanese yen

The yen was one of the main benefactors from a week that finished with a rise in risk aversion and carry trades unwinding. Asian stocks fell as weaker commodity prices and a drop in US consumer spending fuelled concern corporate earnings growth will falter.