Market Review - 30/11/2011 22:30 All times in GMT

Euro rallies strongly after central banks cut costs of dollar funding

The single currency rallied sharply on Wednesday after the Federal Reserve coordinated with 5 major central banks to cut costs of emergency dollar borrowing in its attempt to make more funds available to lenders as Europe’s debt crisis threatens global economic growth. Earlier in the day, euro strengthened after China lowered its reserve requirements for banks.

Although the single currency fell to an intra-day low at 1.3259 in European Morning as investors remained unconvinced by the plans announced by EU officials on Tuesday to bolster the EFSF, price rebounded to 1.3337 after China cut banks' reserve requirement by 50 basis points. Later, euro rallied sharply to a session high at 1.3533 in New York morning after major central banks acted jointly to ease dollar funding, boosting risk appetite.

The Federal Reserve coordinated with European Central Bank, Bank of Canada, Bank of England, Bank of Japan and Swiss National Bank to lower the cost of existing dollar swap lines by 50 basis points to ensure that banks outside U.S. have easy access to U.S. dollar.

Later in New York afternoon session, euro pared some of its intra-day gains to 1.3421 on long liquidation before recovering to around 1.3445 ahead of New York close.

The British pound tracked euro's intra-day movement closely and fell to a session low at 1.5526 in European Morning before rallying strongly to a session high at 1.5779 after the coordinated move by central banks increased risk appetite. However, cable fell in New York afternoon in tandem with euro to 1.5688.

Versus the yen, although the greenback rose to an intra-day high at 78.15 in European morning, dollar tanked to a session low at 77.29 after the move by major central banks triggered a broad-based dollar selloff. However, the pair recovered to around 77.50 ahead of New York close.

FTSE100, CAC40 and DAX closed the day up 3.16%, 4.22% and 4.98% respectively, while DJI closed the day up 474 points or 4.10%.

In other news, a joint statement issued by the major central banks about their actions stated 'actions to enhance capacity to provide liquidity to global financial system; action is aimed at easing strains in the financial markets, helping economic activity.' IMF MD Christine Lagarde said 'when central banks take decisive action it has an effect on markets, that's what we see today; have to find an urgent resolution to current crisis in Europe; have had no discussion with Italy or Spain about programs.' German Chancellor Angela Merkel said 'we must show markets results by stabilising the euro; latest decisions on strengthening the EFSF important; we need to finalise decisions soon on recapitalising the banks.'

On the data front, U.S. ADP employment rose to 206K vs a forecast of 130K. Chicago PMI was 62.6 in Nov, up from 58.4 in Oct. Eurozone unemployment (Oct) was 10.3% while German unemployment rate fell from 7.0% to 6.9% in Nov. UK Gfk consumer confidence was -31 compared to forecast of -33.

Data to be released on Thursday:

Swiss GDP, PMI, Germany manufacturing PMI, EU manufacturing PMI, UK manufacturing PMI, U.S. jobless claims, construction spending, ISM manufacturing.