Daily currency report

Sterling hit one-month lows against the dollar and euro on concerns about the potential damage to the fragile UK banking sector from Dubai's surprise delay on debt repayments. Major UK banks have made large investments in Dubai. The pound soon came off its lows as UK shares started to recover but still traded under pressure. The greenback jumped against other major currencies as investors cut carry trades and risk exposure on concern about Dubai's debt problems. However, the Japanese yen hit a fourteen year high versus the dollar and rallied broadly across the board, making it the big winner. Market sources say that the Bank of Japan kept exchange rates in check earlier in Asian trading with Japanese commercial banks raising fears of outright intervention although analysts say that this is very unlikely now.

Sterling

The pound struggled on concerns about the state of the economy. British Chancellor of the Exchequer, Alistair Darling, is set to downgrade the 2009 economic outlook when he presents his pre-budget report next month.

US Dollar

News that Dubai will halt payments on some of a state-owned firm's debt, sent shockwaves around global markets and while the implications of the story may turn out to be very limited, it comes at a time when "riskier" assets appear to be heavily overbought. The resulting drop in risk appetite saw the greenback recover some lost ground against most of its major rivals.

Euro

The euro made gains against a struggling pound as German IFO business sentiment rose for the 8th consecutive month, despite the GFK consumer confidence survey dipping. Consumers fretted over income, while businesses remained upbeat.

Japanese Yen

The yen dropped rather quickly as risk appetite improved in the Asian session. This was not much of a surprise as the Bank of Japan had stepped closer to intervention than at any time in the last five years by checking exchange rates with commercial banks as the yen rallied to a 14-year high against the dollar.