Financial Markets Review by Lloyds TSB

The USD came under renewed selling pressure this week, reacting to a further decline in US 3-month libor and equity market optimism. A fall in the VIX volatility index implied greater demand for higher risk assets.

USD extends fall, FTSE closes above 5,000

The USD came under renewed selling pressure this week, reacting to a further decline in US 3-month libor and equity market optimism. A fall in the VIX volatility index implied greater demand for higher risk assets.

The JPY and CHF outperformed the commodity and high yielding currencies like the CAD, AUD and NOK. A breakout in USD/JPY below 92.0 squeezed the pair below 0.91 to a seven-month low.

GBP/USD vaulted 1.67, supported by stronger UK data and the BoE decision to leave Bank rate on hold at 0.50% and the QE target at £175bn. The outperformance of GBP/USD vs EUR/USD resulted in a fall in EUR/GBP below 0.8750.

Strong gains for Russian equities (+6%) vs G10 benchmarks handed the Russian rouble the biggest gain in emerging markets.

EUR/PLN firmed 1.8% as 10y yields spreads over Germany widened considerably following S&P’s warning about Poland’s spiralling public deficit and growing risks of non-performing loans in the banking sector.

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