The Pound feels the heat

As expected the Bank of England announced details of the £50billion plan to help stem the credit crisis. The Governor, Mervyn King said that the scheme is aimed to improve liquidity in the Banking system. It should also increase confidence in financial markets, he added.

This will only apply to mortgage related debt and cannot be used to finance new lending. The initial period will be for one year with Bank's having the option to renew the facility for up to three years.

There were many comments following the announcement, the facts remain that the response from the Money Markets was muted, with the 3 month Libor fixing less than 1 basis point lower however this was the 5th consecutive decline.

The Gilts market saw a correction with yields in 2-3 year tenors down around 3 basis points.

The BBA (British Bankers' Association) have initiated a panel for discussions on whether a change in the calculation of LIBOR is warranted. The Director of the BBA Libor group is quoted by saying a change may be necessary, however changing the rate radically at this time would not be the best strategy

RBS announced their plans to increase capital, with a £12billion rights issue.

On FX news - following Friday's gains, the Pound weakened yesterday against the Dollar. Initial moves this morning are extending GBP losses

The Dollar suffered in addition with the further writedowns and bad news from Wall Street.

The EUR retraced slightly against the US Dollar following comments from the Director of the IMF Michael Deppler, saying that the ECB may need to cut interest rates within 6 months to bolster the economy. Although inflationary pressures remain in the Euro zone, until commodity prices start to drop I doubt that the ECB will action any change soon.

Away from the UK - UBS admitted that a lack of risk control and ambitious plans to grow revenue led it to its huge losses when the global credit crunch struck. So far total write downs are $37billion.

In Addition, further writedowns from the Bank of America, contributed to their posting of Q1 net income down 77% (Y/Y).

Oil continued to trend upwards, closing over the $117 level amid continued concerns on supply restrictions.

On the Economic front, we do not start to get stuck in until tomorrow.

Notable release of the day will be from the US with existing home sales for March.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Bank of England is the focus of Wise Money this week

The lack of Interbank lending is weighing heavily on the price of real money in the market place, as we continue to see disparity between LIBOR rates and BASE rates, with the benchmark 3 month LIBOR fixing at 5.89pct on Friday (against 5.00pct BASE).

The question is how long will this continue and what will the powers that be implement to attempt to bring levels back towards parity? In the current climate investors have the ability to lock in to favourable deposit rates, see levels above.

In home news - The Bank of England is due to announce plans to stimulate lending between banks by effectively taking the under performing assets which are linked to residential mortgages from their balance sheet and swapping them for Gilt edged securities which are effectively backed by the labour Government.

These transactions could carry a haircut of around 20%. There are many associated risks - This will take time to filter through the system and the restoration of confidence will not be immediate, lenders may chose not to pass on reductions in Base rates to home owners while the price of liquidity remains inflated.

Oil prices continue to rise, with record levels posted last week at $117 a barrel. OPEC announced that strengthening demand coupled with the weak US Dollar were pushing prices up. Many now expect oil to go through $120 by the summer.

The stock markets posted small gains last week with the FTSE 100 ending the week up over 200 points higher at 6,056.5

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.