The USD was able to maintain its gains against the EUR, GBP, CHF and CAD in the Asian session. The USD slumped at the open but quickly clawed back gains during the morning session with the EUR-USD falling from highs of 1.3964 to 1.3842, just failing to take out large stops under 1.3840. Cable rallied to highs of 1.4563 only to drop as low as 1.4528 in the subsequent sell-off. AUD and Kiwi were the exception to the USD recovery, consolidating gains above 0.7100 and around 0.5900, respectively. USD-JPY held a tight range around 92.00 with JPY cross profit-taking capping gains, but the rally in the Nikkei and further comments from BOJ Shirakawa over concerns for the strong JPY, both helping to under USD-JPY. Oil was firm above $47 on the Israeli ground invasion of Gaza and the Russia-Ukraine spat. Gold ease over $9 at one stage on the stronger USD. Base metals were mixed with copper and zinc higher on stronger stocks but nickel dropping on reports of increased production from China. Asian stock markets were broadly higher in reaction to the US moves, with the Nikkei up at two month highs on the weaker JPY, but Australian stocks were weighed down by weak banking stocks.

Meanwhile, GBP/USD was unable to sustain a surge above 1.4550, falling back to lows of 1.4432 after trading to highs of 1.4663 in early Asian dealings. It is not hard to sell sterling on rallies given the negative news that continues to come out of the UK press. The market continues to anticipate that Marks & Spencer will warn on profits on Wednesday. The UK Independent notes estimates that a quarter of UK families will have no disposable income in 2009. More UK retailers are seen at risk of going into administration, with a forecast by the Forum of Private Businesses that 200,000 small businesses could go bust this year. The Times warns of a corporate UK refinancing time bomb with more than GBP50 bln of bank debt expiring and needed to be refinanced. Finally, the press is focused on expectations that the BOE could cut rates to the lowest levels since 1694. 1.4677 and 1.4800 remain key resistance levels on sterling. Support remains at 1.4380-1.4400.