Federal Plan Rejected
Pound Sterling - UK Markets
The Pound is trading at 1.255 against the Euro this morning and has lost 2.03% against the US Dollar overnight, trading at 1.8098.
News from the US has sent British markets into further disarray. Mortgage statistics for August came in worse than expected yesterday, lowering the value of the Pound overnight. Share markets have also responded negatively to the nationalisation of Bradford and Bingley and confusion reigns over the value of the Lloyds TSB and HBOS merger. It is not until the news desk calms down that we can expect to see some stability in the value of Sterling.
In contrast to the Federal Reserve, governments across the Atlantic have pledged to do whatever it takes in the interests of economic stability for the UK. Yesterday, the Irish government acted to ensure the safety of commercial and personal deposits with major banking institutions “in the interests of the Irish economy” after tipping into recession last week. Brown and Cameron have also pledged to work together to ensure financial solvency for Britain. The Bank of England and ECB continue to pump cash into seized financial markets.
Statistics on the UK current account and GDP are due today.
US Dollar - US Markets
US share markets were rocked yesterday by the news that Congress had sent the Federal Reserve back to the drawing board with their plan for cleaning up financial debt. Equity markets posted their biggest decline since 1987 as a divided house failed to stamp approval on the £390 billion rescue package. At the cost of £1270 to the individual taxpayer, many Republicans opposed the plan, opting to side with taxpayers and reluctance to hand a “golden parachute” to Wall Street bankers and institutions after a decade of perceived greed and excess.
Politicking aside, Congress cannot afford to delay with the effect this news is having on global markets. Following news of the rejection trillions was wiped off stock and shares and uncertainty reverberated round the globe. Oil has fallen to $92 a barrel amidst fears global demand will weaken.
Euro - European Markets
The Euro has proved itself again as a strong and stable currency. It was the major winner overnight in terms of currency exchange, gaining on both the Pound and the US Dollar.
Money market rates in Europe jumped after the rejection of Congress plan meant cash was in short supply as banks are extremely conservative with their lending. European banks are now starting to see the same strife that has afflicted their US and UK counterparts with Fortis, Wachovia, Glitnir and Germany's Hypo Real Estate all receiving help from government lenders recently.
ECB President Trichet is due to speak this afternoon which will provide clarity on the EU position.