The sterling lost further ground against both the euro and the US dollar, weighed down by evidence of a contraction in the services sector and a damning report from the Organisation of Economic Cooperation and Development. Interest rate announcements from both the Bank of England and the European Central Bank are likely to dominate proceedings with both Central Banks faced with the threat of stagflation.

Sterling (GBP)

Traders sold off the pound following the release of the Chartered Institute for Purchasing and Supply's index of service sector activity. The index fell to 49.8, from 50.4 in April, the first fall since March 2003, and the first time that the index has dipped below 50 - the point which denotes contraction - in five years. Traditionally against such a backdrop, the Monetary Policy Committee would be expected to deliver an interest rate cut in order to stimulate flagging growth prospects. However, interest rates are expected to be held at five per cent, with the threat of inflation dominating proceedings.

US Dollar (USD)

The dollar rose to a two-week-high against the pound and consolidated recent gains made versus the euro after the chairman of the Federal Reserve, Ben Bernanke, reiterated his concerns over inflation.

Euro (EUR)

The euro lost further ground against the dollar as data revealed a sharp drop in growth in France, the region's second largest economy, and eurozone services activity slipped close to contraction. With the core measure of inflation running high, it is almost a foregone conclusion that rate will be held at 4 per cent.

Japanese Yen (JPY)

The yen lost ground against the US dollar for the third day in a row, as Ben Bernanke's comments continued to lend support to the greenback, prompting investors to cautiously rebuild their carry trade positions.