Central banks unite to increase liquidity

Central banks unite to increase liquidity

The central banks announced in a joint statement yesterday that they will pump an additional $247bn into the financial system to ease the liquidity constraints which had deteriorated this week. This action was an attempt to alleviate the pressures in the US Dollar short-term funding markets, and as a result the overnight US Dollar rate declined to 3.84% after a three day increase to the highest level since January.

In an attempt to curb manipulative trading, the FSA and SEC have announced that they will be placing a ban on investors from short-selling financial stocks. The FSA ban is set to last to the 16 Jan, after which the FSA are then due to issue comprehensive new shorting rules, whereas the SEC ban will last to the 02 Oct.

Along with the news of the ban on short-selling there were also reports that congressional leaders had met late on Thursday with Hank Paulson and Ben Benanke to decide on a solution to the financial turmoil. It has been said that discussions centred around addressing the root cause of the credit crisis by removing the troubled assets from the balance sheets of American Institutions. The move would involve the creation of a US government sponsored vehicle that would be used to house the toxic assets in an attempt to return confidence and liquidity to markets. The release of the information led to a rally in US stocks with the Dow Jones up 410 points at 11,020 and the S&P up 50 points to 1,207. This rally continued overnight in Asian markets as the Nikkei climbed 392 points to 11,881 and to no surprise has allowed the FTSE to jump 300 points in opening trade.

UK Retail Sales reported an unexpected increase as sales climbed 1.2% in August and 3.3% for the year. This is further support that the BOE will want to see inflation risks ease before they consider cutting rates.

In the US the initial jobless claims rose by 10,000 to 455,000 in the week ending 13 Sep, this is led by an increase in filings in Louisiana following Hurricane Gustav.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.