The sterling looks set to be under pressure as the Asian stock markets closed sharply lower, prompting a greater degree of risk aversion from investors.

The slide in equities came in the wake of a disappointing day for the Dow Jones index of leading shares, which closed at its lowest level for six years. The sell-off was a direct consequence of weak American employment data and also speculation that the US Treasury may be forced to nationalise banks.

Sterling

The pound rose on the back of recovering stock markets and on hopes that a US housing bailout plan will help boost the global economy. The pound's improvement came in spite of data that showed Britain's budget deficit for the fiscal year is now at a record high with public sector debt now standing at a record 47.8 per cent of GDP.

US Dollar

The US dollar came under pressure against the sterling as markets initially responded positively to Barack Obama's plans to help home owners facing foreclosure and data revealed that the Producer Price Index rose by more than expected in January.

Euro

Germany approved a draft of a law that would allow it to nationalise banks that were on the verge of collapse due to the credit crisis. Rebounding European currencies outside the eurozone also aided the single currency. Nevertheless, the euro's gains proved ultimately to be short-lived as risk aversion returned to markets amid ongoing concerns about the health of economies in Eastern Europe and fears over the banking sector in general.

Japanese Yen

The yen remains under pressure after Japan's central bank said this morning that the deterioration in corporate profits had gathered pace. In its monthly report, the Bank of Japan reiterated that economic conditions were rapidly worsening and would continue to deteriorate for the foreseeable future.