Several major economies were still on holiday, however, thin trading volumes helped foster some incredible moves in currency markets resulting in a volatile day of trading littered with new record levels. The US dollar was initially under pressure after activity in US bond markets had earlier suggested that the US economy could yet be in need of more medicine and subsequently the dollar fell. This helped trigger a series of technical flows which saw the dollar fall sharply against the euro whilst tumbling to record lows versus the Swiss franc and six-week lows against the Japanese yen.

Further supporting the yen was a rate hike from China over the weekend which raised concerns over growth prospects in the region. Safe haven buying allowed the yen to advance towards two-year highs against sterling and the pound also tumbled to fresh all-time lows against the Swiss franc. The franc was again seen as the safest place to seek refuge and the “Swissie” rose across the board despite November’s UBS consumption indicator highlighting weak domestic demand in the Swiss economy. The euro fell after France, the euro zone’s second largest economy, saw downward revisions to third quarter growth.

The dollar later recovered after weak US data prompted investors to cut back on risky positions which had seen the Australian dollar, supported by higher commodity prices, rise towards November’s 28-year high against the greenback. December’s US consumer confidence index posted a surprise decline as individuals fret over employment prospects in 2011.

Nevertheless, the yen’s gains were kept in check after Japanese Finance Minister Yoshihiko Noda warned markets that intervention was still an option. Some analysts expect a quieter session as more markets return from their Christmas break thus allowing increased liquidity to dilute currency moves.

The only significant data scheduled is from Switzerland where December’s KOF leading indicators are forecast to paint a weak outlook for the Swiss economy which may encourage investors to book profits on the franc’s record high levels.

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