Debate escalates on Fed bailout plan

Debate escalates on Fed bailout plan

Another day of falling crude oil prices and the morale boost investors experienced on reports of Warren Buffet’s $5bn investment in Goldman Sachs saw the dollar gain ground against the euro and other major currencies yesterday.

First thing this morning the pound regained its upward momentum against the dollar following comments from Bank of England member Andrew Sentance stating that the central bank must control its response to the financial crisis and remember its mandate of inflation control. There has been a shift in thinking within the Bank of England to that of a more ‘dovish stance’. That said there is still a large proportion of people who believe the Bank of England will lower rates when they next meet on October 8th.

The ongoing debate between US Treasury Secretary Paulson, Fed Chairman Bernanke and Congress has seen scepticism from both Democrat and Republican politicians. Congressman from both sides wanted assurances that the Treasury Asset Relief Programme wouldn’t result in a waste of public funds. Paulson attempted to provide comfort by explaining “the program we have proposed is not a spending program. It is an asset purchase program, and the assets which are bought and held will ultimately be resold with the proceeds coming back to the government”.

George Bush expressed his support through a broadcast to the nation on primetime television, urging them to back the plan in order to ease a “serious financial crisis”. Furthermore, John McCain emphasised that he was prepared to suspend his presidential campaign until a solution was agreed, pressuring Obama to do the same. The uncertainty surrounding which aspects of “Paulson’s Plan” will be approved forced a flight to safety which saw interbank lending rates hit record highs yesterday.

Whilst economic releases continue to take a back seat in determining the direction of the markets, German IFO figures fell to a lower than expected 92.9 in September – it’s lowest rate since May 2005, pointing to the growing threat of recession in the Eurozone economy. US home sales also reported a fall to its slowest pace in 17 years.

Some key data out in the US today; New home sales, Unemployment claims and Core durable goods orders.

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.