The US dollar was the main beneficiary of stock market declines, beginning the session higher against all the other major currencies. Unusually, the Japanese yen fell in spite of the equity market declines, underlining the fact that the severity of Japan's downturn is eroding the currency's safe-haven appeal.

Sterling

Sterling eventually gave up the initial gains made against the US dollar, but held steady versus the single currency as markets continued to respond appreciatively to the government's action in tackling the current crisis. The Chancellor of the Exchequer, Alastair Darling, announced that Northern Rock, the nationalised mortgage lender, was set to resume lending as part of the government's plans to kick-start the credit markets. Prior to the announcement, the Rock had been winding down its mortgage book.

US Dollar

The dollar came under early pressure before recovering well against both the euro and the yen as declining stock markets prompted safe-haven dollar buying. With concerns about the global economic crisis and financial stability never far away, investors awaited more developments with Citigroup, after reports over the weekend that the government could take a stake of up to 40 per cent in the ailing bank.

Euro

The euro lost ground against both the US dollar and sterling following comments from European Central Bank chief, Jean-Claude Trichet, whose calls for greater regulation of the banking sector failed to inspire markets. Also weighing on the single currency was the decline of global stock markets, which added to the prevailing mood of risk aversion.

Japanese Yen

The yen starts the session yet again under pressure, having slid to a 12-week low against the US dollar and a one month low versus the euro during the last trading session. Dire GDP figures last week combined with the immense unpopularity of the current governing administration have both served to diminish the yen's safe-haven appeal.