Financial Markets Review : UK Bond Yields and Swaps Fall
Financial market review - foreign exchange
Momentum in the pound has faded somewhat this week amid mixed economic data and Bank of England Governor King's concerns over the magnitude of the UK fiscal deficit. After recording a high on Monday (€1.1904), £/€ pulled back to close the week at 1.1738. £/$ traded the week in the 1.6210-1.6602 range, closing today at 1.6505. Volatility levels continue to gradually fall in foreign exchange as the USD remains stable and range-bound. This stability is shown in today's close in the USD index, of 79.9, which is less than 0.2% away from the close 5 week's ago. AUD/USD and NZD/USD are relatively unchanged on the week, reflecting the small movement across commodity prices. Crude oil fell by only 1.2% this week. This has helped to keep the oil price sensitive currency pair, USD/NOK, stable over the week. The Swiss National Bank has intervened aggressively in the foreign exchange market to depreciate the Swiss franc. The SNB widened their stance to intervene in both EUR/CHF and USD/CHF. The SNB have not formally announced an explicit level which they would like to defend, instead expressing a desire to reduce excessive strength and volatility in the currency. However, intervention has occurred frequently as EUR/CHF approached SFr1.50. The SNB is likely to continue regular interventions to weaken the franc (which is being supported by the nation's current account surplus) whilst fighting deflation in Switzerland.
In emerging markets, the Colombian peso has been the worst performing currency against the USD. Concerns that the economy may be weaker than expected alongside the government's announcement of a larger fiscal deficit continue to provide a significant headwind for the peso, which has depreciated by 2.4% this week, following last week's 4.5% decline. The Brazilian real closed the week at 1.9473, strengthening 1.4% against the USD. Brazil is the world's largest exporter of sugar and the recent rise in sugar prices, which hit a 3-year high amid concerns of a poor crop in India, have been supportive of the real. China has renewed its call this week for a supersovereign currency and that the SDR basket should be broadened. Such announcements by China continue to have a short term negative impact on the USD.
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