Financial Markets Review by Lloyds TSB

A stark warning by the Bank of England on the outlook for the UK economy next year precipitated further selling in sterling this week against its major counterparts.

A stark warning by the Bank of England on the outlook for the UK economy next year precipitated further selling in sterling this week against its major counterparts. The pound slumped below 1.16 vs the euro and dropped to 1.4557 against the dollar as worries of a more prolonged UK economic downturn escalated. Market participants
also reacted to the growing probability that the BoE will again lower interest rates in December. The fact that the UK has rapidly changed from being one of the best to one the worst performing G7 economies this year makes sterling vulnerable to a further depreciation as overseas investors reassess their exposure to sterling
denominated assets. The dollar was one of the strongest gainers in the currency markets this week despite another batch of very weak US economic data. Instead, participants concentrated on the fall in oil prices which is helping to shrink the US trade deficit.

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