Financial Markets Review by Lloyds TSB

The euro’s downward slide continued this week as Greece dominated market focus once again. The euro lost ground against all the G-10 currencies apart from the Japanese yen.

Bond yields rise on fears over sovereign debt levels

The euro’s downward slide continued this week as Greece dominated market focus once again. The euro lost ground against all the G-10 currencies apart from the Japanese yen.

Sterling had a volatile week, but ended a touch lower versus the USD following a dovish Quarterly Inflation Report (QIR) by the Bank of England.

The underperformance of gilts vs treasuries and bunds was striking, especially at the long end where a 16bp jump in 10y yields underlined the increased aversion for UK paper since the end of QE last week. UK swap spreads plunged into negative territory, with 10y spreads ending the week at -12bp.

The SNB were also active once again, intervening twice this week by selling Swiss francs and purchasing euros when EUR/CHF was trading around the 1.4640 level. Interventions, however, appear to be having impacts of smaller magnitude each time.

Emerging market currencies also performed well over the week with the Columbian Peso the top performer, gaining 3.6% versus the US dollar while the Chilean Peso, South Korean Won and Polish Zloty all posted robust returns.

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