Financial Markets Review by Lloyds TSB

Sterling outperformed versus the G-10 currencies except against the Canadian dollar and the US dollar despite a sharp sell-off towards the end of the week following poor UK retail sales data.

Dollar extends gains, bond yields fall

Sterling outperformed versus the G-10 currencies except against the Canadian dollar and the US dollar despite a sharp sell-off towards the end of the week following poor UK retail sales data.

The US dollar index continued its upward break and is now 5.1% above the recent lows. Commodity currencies have taken the brunt of the pain with AUD down 2.4%, NZD down 1.9% and the euro down 1.8%. The euro’s technical break versus the US dollar below the upward trend line continued and the currency pair looks set to revert back to its 200 day moving average (1.4180).

Government bond yields in the US and the UK fell for the first time in three weeks after technically oversold conditions and a decline in equities triggered a sharp retreat in yields. The Fed kept rates on hold at 0-0.25% and said it will let liquidity schemes expire in February.

Full Report