Bond yields rise on fears over sovereign debt levels

By Kenneth Broux, Senior Market Economist Altaz Dagha, Strategist, Corporate Markets

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. It was a tale of two halves for GBP/EUR, falling for the first three days of the week before rallying sharply to end the week at 1.1497, up 0.17%.

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.

GBP/USD traded in 1.5550-1.5750 range this week, rallying to the highs of the week (1.5764) ahead of the QIR following much stronger than expected manufacturing output data and in anticipation of a hawkish report.

In the event, the Bank of England’s new projections showed GDP to be revised down while the central case for CPI inflation was to undershoot the 2% target in two years time. This was the case with both constant and market interest rates.

The Bank of England have clearly left the door open for more asset purchases should they deem economic conditions warrant. Sterling promptly sold off down to 1.5572.

With no economic data releases for the rest of the week, moves in sterling were driven by market sentiment surrounding the Greece outlook.

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* All charts are sourced to Lloyds TSB Corporate Markets Economic Research, Bloomberg, IMF and Datastream

 


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