Sterling regained ground after falling to a 4 month low yesterday of €1.1506/£1 against the euro. Sterling dropped over the weekend after an agreement amongst European leaders to increase the bailout package, but recovered marginally as investors locked in profits from the euro’s move and the UK’s credit rating was affirmed by rating agency Fitch. The agency announced that the UK’s ‘triple AAA’ rating is looking increasingly secure as the coalition’s austerity plan takes effect. It is a relatively quiet day for data, with unemployment and a speech by Mervyn King tomorrow. Sterling should recover against the euro, especially if the Bank of England hikes interest rates by 0.25%, as they are expected to.

In the euro zone, the move by policymakers over the weekend to boost the euro zone bailout fund saw euro strength. However, comments by Eurogroup chairman Jean-Claude Juncker pushed the euro over $1.40/€1 as he stated that there had been a significant increase in inflation. Expectations that the European Central Bank will raise interest rates as early as next month have supported the euro, and these comments were no different. Out today there is German economic sentiment, so call in now for a live exchange rate.

In the USA, the US dollar rebounded from a 4 month low against the Japanese yen after the Bank of Japan extended $183bn of liquidity to support its banks in the wake of Friday’s destructive tsunami and earthquake. This bold action helped ease money markets and as a result fears over funding and liquidity were kept at bay. US dollar volatility is at nearly 12%, and the Japanese yen is set to strengthen as the Japanese government sells off part of its US$1 trillion US government bond holdings in order to pay for rebuilding.

Elsewhere, Russian President Vladimir Putin said on Monday that there was little threat of a global nuclear disaster as Japanese nuclear technicians battled to avert a meltdown at an energy plant. Either way, the impact of the earthquake is far reaching and currency markets have been incredibly volatile today.

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