Weekly Financial Analysis by Lloyds TSB

US Congressional impasse regarding the details and size of the TARP (Troubled Asset Recovery Programme), President Trichet’s comment that an interest rate cut was discussed as an option at Thursday’s ECB meeting, concerns about European banks’ financial health in the wake of the Fortis bailout and a weak set of economic data releases across the board have led to significant currency volatility this week.

US Congressional impasse regarding the details and size of the TARP (Troubled Asset Recovery Programme), President Trichet’s comment that an interest rate cut was discussed as an option at Thursday’s ECB meeting, concerns about European banks’ financial health in the wake of the Fortis bailout and a weak set of economic data releases across the board have led to significant currency volatility this week.

Over the week as a whole, the US dollar has strengthened by 5.3% against the euro ,which touched a 13-month low of $1.3703. £/$ depreciated 3.5% to 1.7749. However, sterling rose 1.9% against the euro to end at 1.2842. The Japanese yen strengthened close to 5% against the euro, leaving the $/yen cross unchanged, as investors took flight to safety into Japanese assets along with US government
bonds. Other East Asian countries with strong trade relationships with Japan, such as the Taiwanese dollar and the Singapore dollar, also strengthened. The high-yielding Australian dollar and the Brazilian real were the worst performing currencies against the majors, partly related to retrenchment in commodity prices, as oil prices fell briefly
below $90 a barrel.

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