Pound Sterling - UK Markets

The UK government is this morning following in the footsteps of its US counterpart in an unprecedented partial nationalisation of the Britain's major banks. Under the scheme, details of which are still to be announced, RBS, HBOS, Abbey, Barclays Plc, HSBC Holdings Plc, Lloyds TSB Group Plc, Nationwide Building Society and Standard Chartered Plc are eligible for government help. The government will invest approximately £50 billion into the British banking industry in buying preferential shares. A further £200 billion will be made available for lending through the recently extended Special Liquidity Scheme.

The partial nationalisation has the intention of restoring banks to their fundamental objectives, “providing cash and investment for families and businesses” said Darling in a statement this morning. While markets are yet to dramatically respond to the news, the comprehensive and international nature of the plan, combined with the sense of ownership it will provide for taxpayers, is expected to restore market confidence.

The Bank of England is also expected to announce an interest rate cut of half a percentage point tomorrow, made likely by recession in the third quarter of 2008. The MPC's decision, along with UK balance of trade data, is due tomorrow.

US Dollar - US Markets

US markets continue to experience financial turmoil as the Dow Jones index declined for the fifth consecutive day. Morgan Stanley, Merrill Lynch and Bank of America each lost a fifth of their value overnight and the US Dollar is down against the Pound and the Euro this morning.
There is also speculation that the Federal Reserve will cut interest rates in an attempt to revive the flagging economy. The announcement of a Commercial Paper facility by the Federal Reserve Board yesterday is another recent measure in the attempt to provide liquidity for business.

The only relief for US markets came in the form of a barrel as the price of crude fell $4 to US$ 86.06

Euro - European Markets

European Central Bank Governing Council member George Provopoulos has spoken out this morning warning the ensuring global credit crisis will be much worse than experts predicted. The Euro remains relatively stable at present, having gained 0.96% against the US Dollar overnight.

Finance ministers in the Eurozone have pledged greater co-operation in the face of the crisis and have acted to raise the guarantee on bank deposits to 40 000 Euros in a bid to protect smaller investment firms. Ireland was the first to adopt the proposal followed by Greece, Sweden and Denmark. Other countries have followed suit with the Spanish government the latest to opt in.

The ECB may also be forced into a rate cut decision soon, after having chosen to  leave rates unchanged at 4.25% last week. A G7 meeting tomorrow morning will reveal the extent of international co-operation on the matter.