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The euro rocketed to a two-month high of $1.29 and sterling jumped two cents to almost $1.54 after the Fed confessed that the US economy may not recover for five or six years. Far from winding down emergency stimulus, the bank may need a fresh blast of bond purchases or quantitative easing.
Leading US stock markets tumbled more than 2.5% as poor company results and fresh economic data hit investor confidence in the economic recovery.
On Wall Street the benchmark Dow Jones Industrial Average fell 2.5%, while the S&P 500 index was down 2.9%.
Shares in Citigroup and Bank of America were hit, with both reporting falling revenues.
US consumer confidence also fell to its lowest level since August 2009, according to one report.
The poor results were not limited to US banks, however, with General Electric also down 5% after reporting falling revenues, despite a rise in profits...
and dropped to the lowest level this year versus the yen as economic reports added to evidence that the U.S. recovery is losing momentum.
The U.S. currency dropped 2.3 percent to 86.57 yen, from 88.62 yen, after reaching 86.27 yesterday, the lowest level since Dec. 1.
Goldman Sachs is set to pay as much as 45pc of its 2010 revenues to its staff in a move that is likely to reignite political anger with the investment bank just days after it settled a high-profile fraud case with American regulators.
Analysts expect Goldman to say that its closely-watched compensation ratio, which indicates the intended level of staff pay as a proportion of its revenues, is between 40pc and 45pc when it announces its second quarter results this week.
Goldman's results will also show for the first time a $600m (£392m) hit for the UK's bonus tax.
The bank is estimated to have set aside just over $9bn in pay for its staff in the first half of 2010, working out at an average payout of $235,429 for each of its 38,500 employees for the last six months of work. Goldman bankers are on track to be paid nearly $500,000 each at full year, with senior bankers being paid far more...
China's holdings fell $32.5 billion to $867.7 billion, but it maintained the top position among foreign countries.
Japan, the second largest holder of Treasurys, was a net seller, slimming its portfolio to $786.7 billion from $795.5 billion in April.
In the most surprising news of the weekend (so far), the IMF and the EU effectively suspended Hungary's access to the remaining funds in a $25 billion rescue loan package created in 2008 to prevent a financial meltdown of the country.
"One would definitely expect a weakening forint Monday. A 10-forint weakening (versus the euro) is quite plausible, and nobody knows how nervous the market's reaction might be."
Although Hungary, seeking to secure a precautionary loan deal with the International Monetary Fund, was to continue discussions with officials of the IMF and the European Union on Monday, the mission from the Washington-based lender decided to return home. The EU also postponed the conclusion of the review of the country’s EUR 20 billion credit facility granted in the autumn of 2008. The reason is that "a range of issues remain open" and the cabinet that will need to provide clarification for these. Brace yourself for Monday, folks!
...Selling by China since late last year for four consecutive months raised some concerns that the largest creditor nation to the U.S. may be reducing its exposure to the dollar...
That's a pretty significant 'Stop Press' addition re Hungary!
This is increasingly appearing as shadow Fed debt monetization operation, operating out of the United Kingdom...