2010 is underway and with that comes a fresh new year for the currency markets. Obviously there hasn’t been a great deal to report after the Christmas break but early movements are starting to paint a picture for what we can expect over the next week.

As is always the way with year-end trades, orders are so thin that they can easily cause a large movement in the market. Sterling held it’s own against the dollar from last Tuesday onwards and was up 3% against a soft dollar. However, the pound didn’t fare as well against the euro which was up 5% to trade at 90.29 pence, a month high.

Wednesday saw ongoing debt concerns strike an already thin market and this resulted in the pound hitting a two and a half month low against the dollar. Currency strategists saw any positive sentiment for UK currency immediately washed out by negative factors and the general consensus is that it’s been a challenging year for sterling, despite it’s appreciation against the euro in 2009, which took advantage of the pound’s weakness to touch a one month high at 90.43 pence.

Political risk is likely to be a focus this year ahead of the UK general election, with investors concerned about the chances of a hung parliament which could make it difficult for the government to take steps to alleviate UK debts.

However, some believe there’s every chance that sterling is being undervalued, which could bode well for 2010. The UK economy is expected to return to growth in the fourth quarter of 2009 after contracting in the third, but the proof will most certainly be in the pudding.

So onto the dollar, which has experienced something of a revival towards the end of 2009 after making gains against the euro and the pound. There’s a belief amongst speculators that the greenback could make considerable gains this year, as US investors reduce the share of foreign assets in their portfolio. A December rally saw other currencies struggling against the greenback although it took a slip today as an advance in global stocks and crude oil revived demand for higher-yielding assets.

So 2010 looks to be an interesting one, with economic recovery on the tip of our tongues and a fresh decade ahead.