The pound strengthened over the US dollar by 0.98 cents in Monday’s trading to close the day at the 1.4572 level. The US government yesterday announced a $1 trillion plan to free the US financial system of toxic assets and investors welcomed the news enthusiastically. The FTSE 100 jumped 2.9%, the Dow Jones 6.8% and the S&P 500 7.1% as investors speculated that the ‘Public-Private Investment Program’ would benefit the global economy in the long term. The plan aims to take $100 billion from the ‘Troubled Asset Relief Program’ and leverage this to $500 billion using low-interest loans and guarantees from the ‘Federal Deposit Insurance Corporation’ (FDIC) and the Federal Reserve (Fed). It is then hoped that this will encourage private investors to take part in the scheme, and the US government has confirmed that there is scope to potentially expand the program to buy $1 trillion of toxic assets. This money will then be split and used in two different ways, first to buy toxic credit securities from bank’s balance sheets and second to buy and remove bad loans. With the dollar’s safe haven attraction eroded, the pound was able to post gains, however the dollar’s slide was pared after better than expected existing home sales were announced in the US.
In today’s trading the pound has continued to strengthen over the US dollar as yesterday’s announcement continues to see demand for the dollar as a safe haven fall. Later today consumer price index and retail price index data is announced in the UK. In the US housing price index figures will be announced, as well as data from the Richmond Fed Manufacturing Survey and the ABC/Washington Post Consumer Confidence Survey.
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