Quantitative easing to begin
Pound Sterling - UK Markets
The Bank of England announced yesterday that it is to take unprecedented steps to ease the recession; £75 billion will be injected into the British economy over the next three months.
The Bank will embark on quantitative easing next week, a measure that will see more money printed, after the monetary policy committee cut the bank rate for the sixth time since October. The rate is now 0.5% - a level previously unseen in the Bank's 315-year history.
Mervyn King, the Bank's governor, said it was unlikely that the bank rate could go any lower and policymakers are now focussing on creating money instead. Chancellor Alastair Darling has given the Bank permission to create £150bn - 10% of the annual output of the economy - by purchasing government gilts and commercial assets.
Gilt prices rose sharply following the announcement, but stock markets on both sides of the Atlantic suffered a heavy sell-off amid concerns that the health of the insurance sector had been jeopardised by the credit crunch.
Halifax, Britain's biggest mortgage lender, said house prices fell by 2.3% in February and were almost 18% lower than a year ago, while the Society for Motor Manufacturers and Traders said sales of new cars were down 20% on February last year.
Following this was news that the board of Lloyds Banking Group met last night to consider a government-backed deal to insure up to £250bn of its most troublesome assets. If the deal goes ahead, the bank's management would have to cede majority control to the state.
All this meant that the Pound tumbled. The Dollar gained against the sterling and the Euro on the back of the interest rate cuts. The Pound slid to 1.1221 against the Euro and is now around 1.4220 against the Dollar.
US Dollar - US Markets
However, the US Dollar dropped more than a one percent against a host of currencies overnight, reversing these recent gains, as investors braced for data that is expected to show that the US jobs market took a severe knock in February.
Economists expect the US economy lost a massive 648,000 jobs in February, with the unemployment rate rising to a 25-year high. Speculation that the figure could reach 1 million has hit the Dollar hard.
Although recent bad economic news has tended to be positive for the Dollar as investors have flocked to the perceived safety of the U.S. currency, analysts said investors' immediate reaction to talk of such a horrendous number was to sell.
The Euro gained 1 percent against the Dollar to 1.2695.
Euro - European Markets
The European Central Bank cut its interest rates yesterday by half a percentage point, down to 1.5% - the lowest level since single Euro rates were introduced in 1999. ECB president Jean-Claude Trichet said interest rates could fall further from their current level but he stressed that they were already very low.
The ECB also slashed its inflation forecasts from 1.8% to 1%. The new inflationary target is significantly lower than the ECB's stability objective of 2% and gives them scope to lower rates further.
Other Currencies - Highlights
The Swiss franc was a major gainer, with the Euro tumbling to a four-month low against the currency, with analysts saying the Swiss unit has briefly resumed its safe-haven status amid intensifying concerns about a severe global economic downturn.
The Australian Dollar reached a two-day low against the Euro.