Weekly Financial Market Analysis by Lloyds TSB

Risk appetite improved this week, reflected in a strong rebound in global equities, helping to underpin sizeable gains in some higher-yielding currencies.

Risk appetite improved this week, reflected in a strong rebound in global equities, helping to underpin sizeable gains in some higher-yielding currencies. Commodity prices also rose, led by precious metals and crude oil. However, benchmark bond yields extended their declines as prices rose, with US 10yr yields falling to a record low of 2.91%, after the announcement that the Fed will potentially
purchase $600bn of mortgage securities and further weak economic data. The US$ was weaker against its main counterparts, with the dollar index falling through 85 for the first time in three weeks, from a 2 1/2 year high of 88.46 last Friday. Within the G10, the Australian dollar saw the strongest gain against the US$, up by 3.8%, while the yen ended the week relatively unchanged. The pound also fared particularly well, £/$ rising 3.5% to 1.5295. Weak euro zone data saw £/€ briefly rally through 1.21 on Friday, though closing up 2.2% at 1.2070. Emerging market currencies saw the biggest gains this week, led by the Turkish lira and Brazilian real, as confidence
improved but they still remained well off recent highs. The Indian rupee ended the week slightly weaker against the US$ following the terrorist attacks in Mumbai, while the Thai baht weakened on continuing political unrest in Bangkok. The Chinese yuan was steady, in spite of the surprisingly sharp 1.08% cut in the official lending rate this week.

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