ProgressiveFX.co.uk

Recent days have seen a return to deep pessimism that even an historic Obama inauguration could not lift. UK bank shares have collapsed further with RBS now down from around 650p to 13p in just 2 years. Without UK government intervention is it quite possible the bank along with HBOS may have disintegrated on a lack of liquidity and enormous bad debt exposure. GBP has fallen to new multi-year lows against the Dollar as speculators shorted the UK currency unsure of the liability the UK Government has acquired by committing to endlessly support fundamentally flawed entities.

Equities have also fallen back though not as far as October / November 2008 lows, but another couple of bad sessions could further undermine fragile confidence and we could as yet see new lows.

On a more positive note even the dithering ECB have started to acknowledge the deepening economic problems and have more proactively reduced rates, though they are still behind the curve relative to the Fed and BoE.

Globally, with unemployment worsening, corporate profits slumping and renewed fears over the viability of the banking sector we are more likely to see further strength in the JPY and even the USD, which despite the US $12 trillion deficit, continues to attract risk averse capital due to its position as the worlds leading reserve currency.

Looking forward hedge funds closures will persist, more smaller US banks will fail, RBS and the Lloyds Group may well move closer to full nationalisation and the financial community will quite possibly never be the same again.