Daily currency report

Debt problems in Dubai struck financial markets hard sinking global stocks, lifting safe haven bonds and driving the dollar higher. Gold climbed to a new record high but fell back as the dollar rose.

Sterling

Sterling came under considerable pressure following Dubai's move to restructure its biggest corporate debtor, Dubai World, and delay repayment on some of the company's $59 billion of liabilities. Data showed the economy shrank by 0.3 per cent in the third quarter, less than the initial estimate of a 0.4 per cent contraction. British retail sales rose at their fastest pace in two years in November and retailers expect a further rise next month.

US dollar

The dollar rebounded from a 14-year low against the yen as traders opted for broad risk reduction prompted by Dubai's debt problems to cash in on its recent slide. However the dollar's recovery may be temporary, if the prospect of persistent loose US monetary policy keeps overall sentiment bearish.

Euro

The euro fell sharply against the dollar as renewed risk aversion prompted investors to shed riskier assets and invest in the safe haven greenback. The euro extended losses as ratings agency Standard & Poor's put the credit ratings of four Dubai banks on negative outlook. The euro hit a near two-month low against the yen, however, still managed to hit a month high against the ever weakening pound.

Japanese Yen

The yen hit its highest level in 14 years on the dollar before trimming gains as Japanese authorities made their presence felt by calling banks, moving one step closer to intervention to stem the yen's surge. The yen was also up against the euro and pound as well as the Australian dollar, which slumped to an eight-week low after choppy markets and fears that Dubai may not repay its debt.