Economics Weekly by Lloyds TSB

The Swiss franc and the Japanese yen were among the top performing currencies this week after equity and credit markets worldwide plummeted on fears over a possible debt default in Dubai.

Bond yields drop on Dubai debt default fears

The Swiss franc and the Japanese yen were among the top performing currencies this week after equity and credit markets worldwide plummeted on fears over a possible debt default in Dubai.

UK data had only a peripheral influence on sterling this week. Q3 GDP was revised to -0.3% q/q from -0.4%, in line with expectations. A smaller drop in EUR/USD vs GBP/USD lifted EUR/GBP back over 0.91 to a one-month high of 0.9135.

A drop in oil prices below $75pb and a pullback in gold prices pulled the rug from under the CAD and AUD, while the Swiss franc, first strengthening to parity vs the USD, promptly reversed on alleged SNB intervention. The RBA is expected to raise the cash rate target to 3.75% next week.

In emerging markets, the Turkish Lira and South Korean won were the worst performers along with the Rouble. USD/Lira dropped 1.9% and USD/Won fell 1.4%. EUR/Yuan reached a new high at 10.3395 ahead of the ECB/EU visit to China over the weekend.

Government bonds were supported by a rise in risk aversion, as well as relatively dovish central bank comments, despite some positive economic data releases. Sterling 5yr swaps fell below 3% for the first time since May.

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