Forex Daily

The dollar fell against a host of high-yielding currencies today, including the sterling and euro as an interest rate cut boosted European shares.

The Federal Reserve lowered interest rates by half a percent to 1 percent to its lowest point for four years. Japan’s government also unveiled a bailout plan worth 26.9 trillion yen to help encourage the economy. It is widely anticipated that the Bank of Japan will also lower its rates on Friday.

In a new report published by the Bank of England, it has estimated that worldwide financial firms have lost in the region of $2.8 trillion (around £1.8 trillion) due to the ongoing global credit crisis. It also added that the total money spent by central banks and governments to shore up the financial sector is hovering around the £5 trillion mark.

Due to the ongoing housing crisis, it is also estimated that around 1.2 million UK homeowners could now face negative equity, if the housing markets continue to fall.

Official figures released today show that the UK is on the verge of a recession. The figures show that the economy shrank in Q3 of this year (July to September) for the first time since 1992.

The Office of National Statistics, who issued the report, states that UK economic output fell by 0.5 percent; worse than most analysts had predicted (0.2 percent). Both the global market slowdown and the unpredictability of the stock markets have contributed to the problem.

After the US dollar had a rocky start to the week, falling against numerous currencies, it rallied on Wednesday as investors moved away from riskier assets; this move propelled the dollar to a two year high against the euro.

Also benefiting from the investors on Wednesday was the yen, which saw a four and a half year high verses the euro. Sterling was also down around 3 percent against the dollar, as the Bank of England stated that the British economy was likely entering into a recession.

The US dollar today fell against the euro and sterling, as the ongoing financial crisis and bank bailout plans failed to steady investors. The euro was 2% up over the dollar on Monday, with the sterling up around 1.2% in the opening session.

Both the Australian and New Zealand dollars also saw a rise compared to the US dollar, with a 2% and 1% rise, respectively. The US dollar did, however rally against the yen rising half a percent.

The euro was on the up today, over news that the UK, German and French governments will be implementing a rescue package for their stricken banks. It is hoped that the joint plan will stabilise the financial market after an extremely worrying period last week.

The yen profited on the uncertainty in the financial markets last week, but on news of the new bailout plan began to fall rapidly against the euro as investors moved back to the higher-yielding currency.

World markets took the brunt over the uncertainty of the financial markets yesterday, as the FTSE 100, Nikkei 225 and the Dow Jones indexes fell by 10%.

The fall continues to be headlining news, as investors fear a global recession and early trading saw London’s FTSE 100 Index lose more than 400 points, lowering it to under the 4000 point level. Other markets also struggled, with Japan’s Nikkei 225 index down to its lowest point since ‘Black Monday’ in 1987 and the Dow Jones closing below 9000 points for the first time in 5 years.

Monday sore another torrid time for the euro, hitting a 13 month low against the dollar as investors steered away from riskier assets. The news came as the European economies decided not to implement a coordinated rescue plan for its struggling financial institutions at the weekend.

The yen benefited from the uncertainty in the financial markets, as it broadly rose against the other currencies, pushing the Australian dollar to its lowest level in four years as investors looked to reduce risk exposure.

The US Senate has approved a revised version of the $700 billion bailout plan, that the government hopes will help the crisis facing the US financial system. 74 senators approved the bill, whilst 25 voted against the plan, which is designed to stabilise the financial market by buying up bad debts.

The bill will now be handed to the House of Representatives, which are expected to vote on it this Friday. The House of Representatives rejected the original plan on Monday, but the revised plan now includes tax breaks for families and small businesses, and a rise in the savings guaranteed by the Government up from $100,000 to $250,000.