Financial Markets Review By Lloyds TSB

Gains in global equity markets and further declines in volatility provided most of the impetus for currency markets this week. The A$ and NZ$ were among the best G10 performers as equities scaled 4-month highs.

BoE increases asset purchases by £50bn to £125bn

Gains in global equity markets and further declines in volatility provided most of the impetus for currency markets this week. The A$ and NZ$ were among the best G10 performers as equities scaled 4-month highs.

Sterling firmed 1.4% vs the dollar but sharp gains early in the week vs the euro were unwound on Thursday following the decision by the BoE to increase gilt purchases by £50bn. The ECB cut interest rates to 1% and announced it will buy covered bonds.

The dollar was unable to draw support from the improvement in US economic data. The dollar ended the week lower against its major counterparts (except vs the yen) despite smaller than expected declines in April employment and a stronger than forecast rise in the non-manufacturing ISM survey.

Further signs that the global economic downturn may be easing and the release of stress tests on US banks weighed on sovereign bonds. Government supply pushed US 30y yields above 4.30%.

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