Global rate cut- will it help?

As predicted the central banks announced a dramatic global interest rate cut as the BoE, ECB, Fed, central banks of Canada, Sweden, Switzerland and UAE co-ordinated a 50bp reduction.

The unprecedented effort to ease the credit crisis saw equities rally, however this was very short lived with the S&P 500 finishing lower by 0.5% and the FTSE 100 down 5.2%. There was also little effect on the money markets which remained frozen.

It appears that only time will tell whether this dramatic announcement along with the UK Government Rescue Plan will help to revive confidence in the credit markets.

The pound fell to 1.7258 against the dollar, the lowest level for three years as speculators suggest that further rates cut are required. The Australian and New Zealand dollar fell to their lowest levels in more than five years as investors sold higher yielding assets due to concerns that the frozen credit markets will slow down the economy.

It has been reported that the US Treasury are considering taking ownership in many US banks in an attempt to restore the financial system.

The $700bn bailout will give them the authority to inject cash into troubled banks to strengthen their balance sheets, which in turn will allow them to start lending once again.

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