Markets around Europe are bracing
themselves for the release of the ââ¬Ëstress testââ¬â¢ results at 4pm UK time today ââ¬â
which will be the result of the most comprehensive review of banking and credit
in the EU since the global financial crisis in 2008.
Between 10 and 15 European banks
are expected to fail the test, and will be given until September to submit
plans to plug any gaps in their capital adequacy.
Is this likely to weaken the
Euro, improving the best rates for sending Euros abroad from the UK? The answer to this will depend on how
bad the results are perceived as being, specially given recent worries over the
Italian economy, which have added to the well documented problems in Ireland,
Greece and Portugal.
If more than 15 banks fail the
test, we could expect some Euro weakness, but on the other hand the
transparency of the new tougher tests and the fact that the EBA (European
Banking Authority) at least have a strategy to deal with the weaker banks,
could be seen by markets as a sign of strength thus making the Euro more
expensive.
This also explains recent Euro
strength in the face of bond ratings falling across the Eurozone and talk of
further bailouts, which has not provided the Euro weakness many of you buying property overseas had been hoping for.
When the dangerous exposure of
the UK banking sector to many of the ââ¬Ëproblemââ¬â¢ Eurozone countries is also
considered, perhaps it is easy to see why the Pound has been suffering and not
making the gains against the Euro that at first sight might have been expected.
So, even if the stress test
results this afternoon are worse than expected, it might be unlikely that
exchange rates will improve, and whether you are sending a payment to France,
Spain or anywhere else it could pay to consider fixing an exchange rate now.
The problems in the Eurozone have a track record of producing a stronger (more
expensive) Euro, even though that may seem strange at first.
Until we have sight of more
interest rate rises in the UK (not expected until November at the earliest),
sterling is likely to remain weak, and higher interest rates in the Eurozone
will only continue to fuel demand for the single currency, keeping exchange
rates low for some time to come.
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Source: Currency Index
