The Pound has fallen by the most in six years against the Euro this morning and to the lowest level on record after news broke that the Federal Reserve has cut its discount lending rate in an emergency meeting over the weekend.
The Pound also tumbled against the Dollar this morning, testing the support around the $2.00 barrier as UK stocks slumped to the lowest level in two years and signalled that the ongoing financial crisis is worsening.
That sentiment was reflected in the actions of the Bank of England who announced that emergency funds will be made available for the first time in six months to alleviate tensions in the financial sector.
In terms of economic data, the Pound may struggle to rebound from the record lows against the Euro as the focus this week switches to the CPI estimates tomorrow. The annual pace of inflation is expected to exceed the BoE’s target for a fifth straight month in February but the Bank of England may need to cut interest rates in an attempt to bring stability to the market.
The Euro charged to yet another record high versus both the Pound and the Euro over the weekend and the single currency looks set to make further gains as the ECB maintain a hawkish stance on inflation while other Central Banks begin a series of cuts.
The resilience in the Euro-zone economy has been highlighted with a strong employment report on Friday while the annual pace of growth in unit labour costs accelerated to 2.7%, the fastest rate in nearly two years.
Far more critical to the outlook of the ECB’s monetary stance was the surprising upturn in both headline and core inflation to 3.3% in February. This represents the fastest pace since 1993 and vindicates the ECB’s staunchly hawkish stance on inflation and the need to monitor risks to price stability closely over the coming months.
The increased sense of volatility surrounding financial markets has prompted the Federal Reserve to cut interest rates repeatedly this year and even an injection of up to $200 billion couldn’t prevent another emergency meeting over the weekend as the Fed struggle to prevent a financial meltdown.
In the first emergency weekend meeting for almost three decades, the Reserve Bank cut the rate on direct loans to just 3.25%. News also broke that the Fed will provide $30 billion to help JPMorgan Chase & Co finance the purchase of Bear Stearns after a run of America’s fifth-largest securities firm.
The desperate actions of the Fed in a vain attempt to bring some stability to the market is just the latest step to try an alleviate the seven month credit crunch but the Reserve Bank is in danger of losing the confidence of the American public.
Data Released 17th March
EU 10:00 Final HICP (February)
U.S 12:30 Consumer Price Index (February)
– Ex Food & Energy
U.S 12:30 Real Earnings (February)
U.S 13:55 Michigan Sentiment (March Prelim)
written by Adam Solomon
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