The currency blog

Sterling advanced yesterday as stronger than expected retail sales data helped ease fears over a double dip recession in the UK. The headline number came in at 0.7% month on month against expectations for a 0.5% increase. These figures provided some good news about the state of the UK economy, following recent disappointing housing and public finances data. Q2 GDP data was released moments ago and provided another boost for Sterling with a 1.1% QoQ rise, the highest figure since Q1 2006.

The markets appear to be getting Very Stressed over this afternoon’s publication of the financial resilience of the 91 largest Eurozone banks. The Committee of European Banking Supervisors (CEBS) will release the results of the testing ‘on an aggregated basis’ at 5.00pm this afternoon. Immediately afterwards, the banks and/or their national supervisory authorities will release the individual results and at 5.30pm, the CEBS will release a summary of results, bank-by-bank, sorted by country. Basically, all the data will be released after close of business in Europe and the UK leaving just the US Friday afternoon market to deal with any surprises.

The concerns here are really 2-fold. Firstly, that the results may consist solely of a ‘pass’ or ‘fail’ indication for individual banks rather than anything more substantial, thus leaving far too many questions un-answered. Secondly, there is a fear that it is not that too many banks will fail the test but that too many will pass thus rendering the whole process as unreliable. Therefore, rather than the headline pass/fail rate, the key things to look for are the level of disclosure and the comparability of the results across the whole spectrum of the tested banks. We are therefore reliant upon the CEBS to ensure that this whole process has been conducted properly and that the results are meaningful.

Discuss on this on the Currency Exchange Forum