Financial Markets Review By Lloyds TSB

Foreign exchange rate volatility remained fairly intense last month. Interest rates were calmer but here too tensions have increased, as financial markets give more thought to when some of the extraordinary loosening of monetary policy seen over the last year will start to be reversed.

Foreign exchange rate volatility remained fairly intense last month. Interest rates were calmer but here too tensions have increased, as financial markets give more thought to when some of the extraordinary loosening of monetary policy seen over the last year will start to be reversed. On the foreign currency front, increased signs of economic recovery are generally keeping the US dollar under selling pressure. Some countries have already started to raise interest rates, like Norway and Australia (the latter twice in as many central bank meetings). More countries will follow in the months ahead. On the basis of our forecast that global economic recovery is being led by the emerging market countries, we look for a number of these to hike rates in early 2010. Looking at gdp figures so far for Q3, which showed double-digit annualised increases in Singapore, South Korea and China, we would not be amazed if these countries were amongst the first tranche that either raise rates or signal an increase.

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