Financial Markets Review by Lloyds TSB

Sterling made a poor start to the New Year underperforming the other G-10 currencies on ongoing concerns over the fiscal outlook.

Strong start to the year for equities and high-yield currencies

Sterling made a poor start to the New Year underperforming the other G-10 currencies on ongoing concerns over the fiscal outlook.

Commodity currencies outperformed (Australian dollar, Canadian dollar, New Zealand dollar) as equities rallied and yield differentials widened.

The euro was little changed against the dollar over the week, trading in a range of 1.4258-1.4484. Demand from reserve managers kept eur/usd above 1.43.

Yield curves extended their steepening trend, with UK 2y/10y swaps widening to 220bps and US 2y/10y treasuries widening to 285bps. UK 10y yields cleared 4% and 5y swaps were steady in a range around a 3.35% mid-point.

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