Thursday, September 18, 2008

Paulson to the Rescue...

Today the Treasury came up with a "Permanent" plan to shore up the markets. Stocks soared and Emerging Market currencies strengthen on the back of it. But will it last?


In Brazil the Central Bank announced a plan to sell dollars in the currency market for the first time since 2003. This is a move to inject liquidity into a market that is desperately in need of some.

``This move aims to correct liquidity distortions in the interbank foreign-exchange market,'' Meirelles told reporters in New York after meeting with Federal Reserve officials to discuss the global financial-market meltdown.

Liquidity Issue

``The problem was a liquidity issue, a lack of short-term credit lines for local companies,'' said Francisco Carvalho, currency-trading manager at Sao Paulo-based brokerage Liquidez Corretora, Brazil's biggest currency derivatives brokerage. ``Investors were all asking and waiting for the central bank to move.''

Meirelles said the dollar auctions don't aim to influence currency prices and that the central bank doesn't target an exchange rate.

``We realized there was a deterioration in liquidity,'' Meirelles said.

Speaking to some locals in Brazil, the lack of liquidity is partially because of the collapse of the stock market. Margins are being called and there are no dollars to post. Therefore stocks get liqidated. It is a real mess. As I wrote yesterday Locals need dollars, at all costs.

Good Luck and Good Currency Trading.



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