fundamental alert

Euro, British Pound Plummet On European Financial Crisis Concerns, Intervention On the Way?

Monday, 06 October 2008 22:24:03 GMT  |  Terri Belkas, Currency Strategist

If you thought financial market conditions were bad in the US, take a look at Europe.

The region’s financial institutions are facing the same difficulties in the credit markets there, but unlike with the Federal Reserve, the European Central Bank has stubbornly left rates steady at 4.25 percent since July and up until that point, the Governing Council had remain extremely hawkish. However, over the course of the weekend, a meeting amongst the leaders of Europe’s four largest economies - Britain, France, Germany and Italy - failed to yield any sort of solution or plan for their ailing financial sector, which triggered massive selloffs in European equity markets. In fact, France’s CAC 40 Index ended the day down over 9 percent while Germany’s DAX plunged more than 7 percent. The situation in Europe appears to be more complex than in the US, as European countries lack common budgets and regulations for banks and brokerages that deal in cross-border transactions. As a result, it is very difficult to come up with a large blanket program like the Treasury’s Troubled Asset Relief Program (TARP), which was signed into law by President George W. Bush on Friday.

Is a global bailout effort on the way? The US Treasury announced today that the finance chiefs of the G7 will meet on Friday ahead of the annual meetings of the International Monetary Fund and the World Bank. There was no agenda disclosed for the meeting, but with investor confidence souring more and more by the day, the G7 has little choice but to find some way to try to soothe fears in order to avoid an all-out collapse. A joint intervention effort to this degree may be unheard of, but these are also unprecedented global market conditions.

Related Articles: EUR/USD Could Fall Further As the Credit Crisis Reaches Europe, Euro/US Dollar Exchange Rate Forecast, British Pound/US Dollar Exchange Rate Forecast


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