Last week the dollar depreciated almost by five per cent against a basket of currencies in its biggest weekly decline since 1985. The main beneficiary of dollar weakness was the European single currency even though there was very little published by way of economic data. Extremely weak UK labour data and a rising unemployment claimant count last week suggested that the UK economy was heading for a sharper contraction than first thought.

Sterling

Sterling rose over three per cent against the greenback, although this was mainly a consequence of broad-based dollar weakness than any underlying sterling strength. The fact that the pound remains mired close to weekly lows against the euro only serves to underline this fact.

US Dollar

The Federal Reserve held rates at close to zero, stating that the ultra loose policy would be in place for an extended period of time. The Fed also announced further measures to increase market liquidity, including a move to start buying up government debt - effectively printing money. Market reaction was swift and traders sold-off the greenback heavily; fearing that increasing the money supply in this way would eventually erode the dollar's value.

Euro

The single currency begins this week on a strong footing, consolidating last week's impressive gains against both the sterling and the US dollar. In fact, many of the euro gains have been a direct consequence of dollar-weakness, as traders seek alternative investments that look likely to hold their value.

Japanese Yen

The Japanese yen fell to its lowest level versus the euro for five months as high yielders were back in favour in line with a pick up in risk appetite. The yen also lost ground against most of the other major currencies as the Bank of Japan announced that it would increase its buying of government debt to 21.6 trillion yen.