Central Banks Co-operate
Pound Sterling - UK Markets
The Bank of England announced a cut of half a percentage point, along with the Federal Reserve, ECB, Canadian and Swiss national banks in an emergency measure amidst the financial turmoil that has ruptured markets this week. The IMF spoke yesterday in praise of the co-ordinated response, yet also predicted a deep and protracted period of recession for the global economy.
The UK base rate is now at 4.5%, with the expectation of a further cut next month to come. The co-ordinated response, which was unprecedented in nature and scale, has resulted in some continual weakness for Sterling with the Pound down 1.11% against the US Dollar and 1.33% against the Euro this morning.
The news also failed to inspire equity markets, which closed with notable losses, and their suffering is expected to continue until the credit sphere is restored.
The UK goods trade balance is due this morning and is expected to be consistent with recessionary tendencies.
US Dollar - US Markets
The US Dollar along with the Euro, has held relatively steady last night, posting a whopping 7.22% gain against the Australian Dollar.
Paulson signalled yesterday that the Federal Reserve many also look to invest in Banks as part of the Federal Reserve Rescue Package, much like the plan announced by Chancellor Darling and PM Gordon Brown in the UK yesterday. Insurance giant AIG has also been given a further $37.8 billion by the Federal, in addition to the $85 billion emergency fund last month, to ensure its financial solvency.
Recent US employment and manufacturing data are consistent with evidence of recession, while statistics from the service sector are holding ground. The price of crude remains in the vicinity of 2008 lows, which will likely ease inflationary pressures during the coming Northern Winter.
Euro - European Markets
The ECB yesterday participated in slashing interest rates in an attempt to stimulate the economies of countries within the Eurozone. As the primary mandate of the ECB, interest rates are their only real tool in alleviating the economic woes of its constituent nations.
Iceland remains in dire financial straits as the government seized control over Kaupthing Bank yesterday. The bank, along with two of Iceland's other major banks has collapsed under the weight of its foreign debt and at present, the government is seeking international loans from Russia and the IMF to ensure short term liquidity. The bloated and debt reliant financial industry in Iceland is now facing a severe recession.
The Yen suffered losses yesterday, down against the Pound, US Dollar and Euro as central bank intervention revives the risk appetite of investors. The Kiwi and Australian Dollars are continuing to suffer weakness, losing a substantial 3.14% and 5.80% against the Pound respectively.