Financial Markets Review by Lloyds TSB

Sterling is relatively unchanged on the week, however this masks the intra-week volatility observed in foreign exchange trading. GBP/EUR closed at €1.0877.

US data disappoint, swap rates and equities fall

Sterling is relatively unchanged on the week, however this masks the intra-week volatility observed in foreign exchange trading. GBP/EUR closed at €1.0877.

Government bond yields and swap rates fell sharply on disappointing economic data and lower equities. UK 5y swaps fell below 3.10%. UK 3-month libor dropped to 0.54%.

Interest rate spreads have continued to move in Norway’s favour, resulting in the krone being the second strongest G-10 currency (behind the Canadian dollar) this week.

The Swiss National Bank (SNB) has once again intervened in the currency market to weaken the franc. The intervention appears to have been designed to coincide with the European Central Bank’s auction, where €75.2bn was lent for a period of 1-year at a rate of 1%.

In emerging markets, the South African rand has been the worst performing currency, falling 3.1% against the USD. The rand weakened after intervention by the South African central bank. The collapse in the proposed Bharti Airtel and MTN Group merger also weighed on the rand.

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