Foreign Exchange Report : GBP USD Rate Rebounds From 8-Month Low as Five Leading Central Banks Act in Unison to Avert Global Banking Crisis

Modified: Friday, 16 September 2011 08:53 BST - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP USD Rate Rebounds From 8-Month Low as Five Leading Central Banks Act in Unison to Avert Global Banking Crisis

The Pound Euro exchange rate (GBP EUR) is 1.1422. The Pound Dollar exchange rate (GBP USD) is 1.5767. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5244.

Five of the world’s leading central banks took the drastic step of announcing a joint action aimed at shoring-up the global retailing banking sector yesterday, stealing the headlines in the currency markets.

The move, announced during yesterday afternoon’s European session, will see the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England and the Swiss Central Bank make significant tranches of 3-month US Dollar loans available to retail banks in their jurisdiction in order to boost their liquidity.

The aim of the move is to bolster the balance sheets of commercial banks across the globe in order to avert a possible banking sector collapse triggered by sovereign debt defaults. The first loan offers will be made in October, with further offerings to follow in November and December.

The development came after warnings from the new head of the IMF, Christine Lagarde, that without ‘bold action’ on sovereign debts, the global economy risked slipping back into recession.

Judging by the market’s response to the central banks‘ announcement, it appears that investors consider the proposal to be bold enough; global banking stocks, which had been dragging world stock markets lower over the past two months, rallied, with French banks coming in for particular support. French giant BNP Paribas enjoyed considerable gains, closing up by 13% on the day. UK banks were also well-supported in the aftermath of the announcement and stock indices in general moved forward on the news.

The increase in global appetite for risk saw institutional investors shift out of their safe-haven positions in US Dollar treasury bills, causing the Dollar to lose ground as the European session drew to a close. It looks possible that the GBP USD rate has dropped as far as it is going to in the near-term, with the 8-month low of 1.5706 now representing a significant level of support moving forward.


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