Rejection of Rescue Package, Failure to Get Bill Passed

The U.S. House rejected the proposed $700B financial sector rescue plan that was looking to provide liquidity to the lending markets. The vote was rejected by 228 to 205 votes, with the immediate reaction being a slide on Wall Street stock valuations. In mid-afternoon trade the Dow Jones was off 550 points, or 5%, the equivalent of eight days of negative trade. Gold moved higher by 1.5%, and the global markets will now have time to easily plan their moves as they move towards their open. The Bill was looking to give the government broad authority to swap toxic assets for lines of credit, and in doing so clean out financial sector balance sheets that would then hopefully allow lenders to lender, and borrowers to borrow.

"The bill may have underestimated the fall-out from those who are concerned about the level of debt held by the U.S. government, and the potential inability to service it" said Anthony Tillman, trade desk director at TheLFB-Forex.com. "It seems as though this may have been seen by voters as an under qualified borrower looking to get approved for a loan that they appeared to be trying to push quickly through, before a full credit check could be run. This on a day that $620B went in Federal Reserve TAF auction facilities, members are asking where the cash is coming from, and where it is going" Tillman added.

The fall-out has been contained at the same levels in the U.S., but it has to be remembered that most global trade desks had already finished their regular day. Global equity market futures numbers are sliding, and that may pressure the Asian World index, as well as the Japanese Nikkei, and then the European equity markets, all of which is likely to create risk aversion moves that may empower the Japanese yen, and the Swiss franc. Confidence from overseas in the U.S. ability to properly fund its debts may pressure the valuations of the Usd.

Looking forward to the forex impact it would seem that trust in the 'World's Currency', the Usd, may be thoroughly tested, as will the resolve of overseas holders of U.S. debt. Sovereign wealth funds will have to weigh the need to buy dollars to protect their Reserves, and the need to hedge the fall-out of the lack of market liquidity that would free up how easily global trade takes place.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

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