Financial Markets Review By Lloyds TSB

The euro stayed under downward pressure all week, losing ground against all G10 currencies but the Norwegian krone as pessimism broadened following talk of a possible bailout of Greece by the EU.

The euro stayed under downward pressure all week, losing ground against all G10 currencies but the Norwegian krone as pessimism broadened following talk of a possible bailout of Greece by the EU.

Risk aversion plays also favoured outflows from high yield and emerging market currencies and helped the US dollar index to strengthen to a 5-month high above 79.0.

Weak UK Q4 GDP data only caused a knee-jerk selling in GBP on Tuesday as heavy dividend related GBP/USD buying by oil major BP supported corporate demand. The UK economy limped out of recession in Q4, registering feeble 0.1% q/q growth.

Emerging market currencies were also subject to heavy selling as participants reduced equity and commodity holdings. Silver dropped 4.6% and copper plummeted 6.7%.

UK bond yields wound up modestly higher this week, despite a much weaker than expected outturn for the first estimate of Q4 GDP. Over the week, benchmark 10yr gilt yields fell 1bp to 3.91%, having at one point fallen to a low of 3.84%. Five-year swaps fell 6bps to 3.11% and 3m libor was marginally higher at 0.61625%.

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