Financial Markets Review by Lloyds TSB

Sterling falls sharply despite pause in QE

Sterling suffered from heavy selling pressure all week, despite the BoE announcing a pause in quantitative easing, losing ground against all G-10 currencies and breaking below key support versus the USD

Government bond markets posted impressive gains for a 3rd week in succession as turmoil in equity markets and peripheral euro zone countries triggered a broad based flight-to-quality. This pushed UK 5y swaps below 3% and 2y bund yields below 1%.

The US dollar was one of the main beneficiaries of the sharp deterioration in equities. New cycle lows versus the euro and sterling were printed this week.

The Swiss franc continued to appreciate, hitting a high of 1.4558 vs the euro, prompting SNB intervention.

Euro weakness has been prominent throughout the week despite the EC endorsing the budget proposals from Greece that are needed to bring the fiscal position under control. Market focus turned to Spain and Portugal.

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