Europe Under Stress

This evening sees the release of European banks stress test results. The results, due to be released at GMT 17:00 are essentially an annual health check on 90 European banks. Reports suggest that up to six Spanish banks are expected to fail the tests along with several in Greece. Overall, it is expected that anywhere between five and fifteen banks will fail. The stress tests have however masked some of the debt issues currently ravaging the continent, but even so, the euro is likely to struggle going forward.

Pound Sterling – UK Markets

A small rumour seeping out of the Eurozone suggests that stress test results due to be revealed this evening are likely to show that euro-region lenders need to raise more capital than the UK. On the back of this, sterling has advanced to a near one-month high again the euro. However, a report carried out by Rightmove has indicated that UK home sellers lowered asking prices for the first time this year. Initial prices dropped 1.6 percent from the previous month. With growth almost stagnant and housing sales figures continuing to fall, we can expect this trend to continue over the next few months.

US Dollar – US Markets

While most of the world’s economies are struggling to keep inflation under control, US levels are below target. However, Federal Reserve Chairman Ben Bernanke reported that inflation has moved higher and thus increasing speculation the central bank will not be required to take further stimulus measures to support the economy. In short, Bernanke has now taken a step back from a third round of quantitative easing which has given the dollar some breathing space. On the other hand, it appears that ratings agency Standard and Poor’s are on a continuous rampage over the past couple of weeks. They have now added the US to their list of nations under review stating that they may cut the nations top credit grade. So long as this speculation continues, the US Dollar will come under increasing pressure.

Euro – European Markets

The Italian Senate yesterday passed through 48bn euros worth of tough austerity measures over the next three years. It appears as though Italy wanted to avoid the turbulence that Greece has encountered over recent weeks by addressing the issue as quickly as possible. Although opposition parties voted against the package they agreed not to delay it in order to avoid uncertainty in the markets.

Other Currencies – Highlights

With most of the worlds major currencies on shaky ground at present, investors have been flocking into the Swiss Franc. The safe-haven currency has touched record high, against the US Dollar, euro and sterling following reports of a potential credit downgrade in the US. The Swiss national currency appreciated for the fifth consecutive day against its US and European counterparts. Assets linked to growth have been sapped of some of their power over recent weeks amid speculation the global economic recovery is slowing. Due to this, the Australian Dollar headed for a second weekly loss against the US Dollar and the Japanese Yen. It has been mentioned recently that there could be worrying times ahead for the Australian economy.