The dollar held at its highest levels in six months, whilst the euro huddled near seven month lows on fiscal concerns. Higher yielding currencies remained under pressure by the closing of leveraged trades. Sterling remained under pressure ahead of the Bank of England's MPC meeting this week despite better than expected manufacturing PMI. Stronger than expected US gross domestic product data out late last week reinforced the view that the world's largest economy was recovering from the recession faster than the eurozone and Japan. The single currency remains under pressure on the well publicised debt concerns of member states.

Sterling

Sterling weakened against the dollar and euro as investor's weighed the risks ahead of a key Bank of England decision, where interest rates are forecasted to be kept on hold at 0.5 per cent. There has also been no indication that the central bank has any immediate plans to increase its £200 billion stimulus package.

US dollar

The dollar extended gains against the yen and pared losses against the euro after data showed business activity in the US manufacturing sector came in stronger than expected in January. Manufacturing index rose to 58.4, which overshadowed expectations for a reading of 55.5. It was the highest reading of the manufacturing ISM since August 2004. The dollar also rose against higher-yielding currencies such as the Australian and New Zealand dollars on the back of this data strengthening optimism about a global economic recovery.

Euro

The euro rose against sterling, buoyed by corporate demand which outweighed robust UK manufacturing activity data. The single currency made strong gains against the yen amid broad euro strength and yen weakness, with risk tolerance rising as investors bet that global economic growth is picking up pace.

Japanese yen

The Japanese yen rose off earlier lows against major currencies; however it saw very little activity in the overnight session despite comments from the Prime Minister and finance minister on policy.