Sterling rose against a broadly weaker dollar, rebounding from two-week lows hit last week. The dollar weakness was driven in part by a return of risk-taking sentiment in the markets. The US currency also fell to a six-week low against the yen and lost ground to the euro.

Sterling

The British pound was buoyant against a weakening dollar as moderate risk-taking re-emerged, but the pound buckled under pressure against a broadly firmer euro. With little in the way of significant data out in the UK, pound movements were driven largely by market sentiment. Improved equity and commodity market performance was stoked by risk appetite and sterling was able to appreciate as a result.

US dollar

The dollar dipped against the euro and the pound, after a Federal Reserve official affirmed expectations that US interest rates would stay low for some time. Furthermore, strong US housing data dampened the currency's safe-haven appeal. Because low rates would limit returns on many US investments, investors were prompted to diversify out of the currency to seek other riskier assets with higher yields.

Euro

The euro strengthened in early trading, after a key survey showed the eurozone's service sector grew at its fastest pace in two years in November and exceeding forecasts. The eurozone Flash service PMI rose to 53.2 in November from 52.6 in October, suggesting an economic recovery will continue in the fourth quarter, albeit at a slower rate.

Japanese yen

Yen crosses have slipped as Japanese exporters sold the euro against the yen and hedge funds took profits on gains in the likes of the Australian and New Zealand dollars.