Financial Markets Review By Lloyds TSB

After a strong start to the week, sterling gave up much of last week’s gains versus the dollar. Against other G-10 currencies, however, sterling outperformed registering gains of 2.5% versus the New Zealand dollar and 1.66% versus the Canadian dollar.

Fall in equities boosts government bonds

After a strong start to the week, sterling gave up much of last week’s gains versus the dollar. Against other G-10 currencies, however, sterling outperformed registering gains of 2.5% versus the New Zealand dollar and 1.66% versus the Canadian dollar.

Downside surprises to money supply and retail sales data in the second half of the week combined with the broad based US dollar rally led to GBP/USD selling off to a low of 1.6078 on Friday before closing at 1.6144.

Concerns over the state of Greek public finances continued to weigh on the euro which fell through key technical levels versus sterling and the US dollar, accelerating the fall. Profit-taking on Friday saw the euro recover some ground with GBP/EUR falling back to 1.1407.

Commodity currencies were hit hardest this week following concerns over the durability of the global recovery despite China posting strong economic data this week.

Government bonds extended their excellent performance since the start of the year, buoyed by a retreat in equity markets and weaker than expected economic data from the G3 economies. UK 5y swaps hit a 3.33% high but closed the week below 3.20% near a 4-week low. Roughly £4bn in sterling issuance was raised in the capital markets.

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