Yesterday’s evening result for the European Bank stress tests, a wildely anticipated event for the past few weeks, caused a lack of consensus on the Pound’s value – the first such occassion I have ever seen.
The XE trading app, which many of our regular readers may have on their mobiles went bonkers after the results came out on Friday evening at 9pm. With only American markets still open to trade on the news for a further hour, it seems that the flurry of activity within the final hour before close of play at the weekend caused the some confusion on the value of European currencies.
Seeing my phone flash up with 1.21+ on GBP/EUR, 1.35+ on GBP/USD, and 1.78+ on GBP/AUD all of a sudden was amazing and frankly unbelievable. Unfortunatley for anyone considering buying a foreign currency, it was.
The rates on XE have since deflated, and were likely a mistake – to the frustration of many who would have had automatic buy orders in should any particular levels be reached. Other websites show that rates never got anywhere close to what was shown at XE, and the Pound was actually lower following the results.
So what actually happened?
The results showed a mixed bag. The Eurozone had some of the worst performers, which was expected given the recent news focussed on Italian Banks and their potential debt crisis.
The UK performed relatively well, with only really RBS showing some concerning results. The stress tests show how a Bank would be able to cope in a sudden recession as one example. RBS’s capital fell by 7.5 percentage points, the third lowest of the 51 banks tested.
The results have greater significance for the UK, given that the likelihood of a recession has increased followin the Brexit vote. And with 73% of RBS owned by the taxpayer, having the spotlight on them for a poor result was slightly more concerning for the Pound.
As a result, the Pound was down against most major currencies, except for the Dollar which itself suffered at the end of the week due to lower than expected growth forecasts for the US.
With the Bank of England interest rate decision on Thursday, this mixed bag of data makes it difficult to know if an intervention will be needed – either in the form of a rate cut or QE, both of which would harm the Pound’s value.
The Bank of England’s remarks to the news was that the results for Barclays, HSBC and Lloyds were ‘consistent with those of previous Bank of England stress tests.
With this overall stable picture will the bank feel the need to intervene? I think it has now become less likely. The bank now has breathing room to wait until their meeting in September before having to consider such drastic action.
As such, Euro and Dollar sellers may be seeing some of the more opportune selling rates evaporate ahead of Thursday’s decision.
I strongly recommend that anyone with an AUD/GBP, EUR/GBP or USD/GBP requirement should contact me over the weekend whilst markets are closed on firstname.lastname@example.org to discuss a strategy for your transfer in order to maximise your Sterling return.
There are options through a currency exchange broker which enable you to manage your risk and seize any highs which emerge on the markets within a timeframe of your choosing.
Those using Sterling to buy a foreign currency can also get in contact to discuss how to manage the market ahead of the decision on Thursday.
I have never had an issue beating the rates of exchange offered elsewhere, so a brief conversation could save you thousands on your transfer.