Federal Reserve Rescues AIG
Pound Sterling - UK Markets
Global markets continued to reel from the aftershocks of the Lehman collapse and all eyes were on AIG overnight as the casualties of the credit crunch continue to mount.
UK inflation came in at 4.7% a record high, prompting Governor King to write a letter to Darling reiterating the Banks forecast peak of 5% over Christmas, with a return to target taking place over the next two years. Minutes from the last MPC meeting are due today.
The Pound was up against the Euro to 1.2606 and down against the US Dollar to 1.7963 this morning.
UK stocks and shares felt the effects of the Lehman collapse and Barclays, the UK investment bank has agreed to buy Lehman for 1.75 billion in a firesale.
US Dollar - US Markets
In its second major intervention in financial markets in under 10 days, the US Government has stepped in to bail out American insurance giant AIG. Announcing an $85 billion dollar emergency rescue package overnight, the Federal Reserve agreed to lend taxpayer money on a 2 year basis for a 79.9% stake in the company.
The highly unorthodox activity on behalf of the Fed is indicative of the severity of the credit crisis. AIG employs 106,000 people in 130 countries and sells 12 million policies annually in Britain. It ensures a number of products sold at major chainstores and sponsors Manchester United to the tune of $14 million annually. The collapse of AIG would further cripple the global financial system, the key factor in the Government decision to intervene.
The Federal Reserve also decided not to cut interest rates yesterday, despite turmoil in the global markets, keeping benchmark rates at 2%.
Euro - European Markets
European data yesterday showed inflation easing and a slight strengthening of the Euro on the back of declining oil prices and increased export competitiveness this month.
The Bank of Ireland comments that the Euro is likely to be the long term beneficiary of such recent market uncertainty as Central banks in Europe, US, UK and Asia are pouring funds into markets attempting to shore up liquidity.