A more positive outlook saw investors reverse their recent risk adverse trading into a basket of riskier currencies. Market sentiment improved sharply following the release of the euro bank stress tests on Friday, and although subsequently investors have voiced their concerns around the thoroughness of the tests, a more positive market sentiment blossomed following the release of the best pending home sales in the US since 1980. The euro was the main benefactor of this improved sentiment, with investors once more exiting out of the safe haven US dollar and into the euro, forcing the dollar to two-month lows against the single currency and three- month lows against sterling. Sterling though remained firm against a rising euro, still supported by the surprising GDP figures of Friday, posted at 1.1 per cent and representing the fastest pace of growth in four years.

Sterling

Sterling opened the week well, extending gains following Friday's shock GDP figures as it rode the wave of improved market sentiment. The pound hit a three-month high against the dollar and held firm against the euro.

US dollar

A return of risk appetite saw the US dollar extend losses. This followed Friday's positive release of the European Union's bank stress test results which saw demand for the safe haven dollar distinctly lessen. The greenback touched three-month lows against sterling and near two-month lows against the euro as global stocks rallied, encouraging investors out of the dollar.

Euro

The euro rallied, with an increase in risk appetite encouraging investors back into the single currency. The outcome of European bank stress tests on Friday showed that only seven of the 91 banks examined failed the tests, allowing investors to regain some sense of confidence in a euro which has so recently been weighed down by stagnation fears following the Greek debt crisis.

Japanese yen

Risk appetite diminished the appeal of the Japanese yen, with global sentiment diminishing the appeal of the safe haven yen. The yen has been weakened recently by a rising Nikkei stock index, which had been posting gains following a successful start to Japanese earnings season.

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