Euro Climbs as German Sentiment Outweighs Stress-Test Worries
Deutsche Bundesbank president Axel Weber. Photographer: Hannelore Foerster/Bloomberg
July 23 (Bloomberg) -- Ray Attrill, global research director at Forecast Ltd. in Sydney, talks with Bloomberg's Linzie Janis about the European Union's bank stress tests and his forecast for the euro. The euro headed for a weekly decline against the dollar on speculation stress-test results today will reveal loan losses at European banks, reducing demand for the region’s assets. (Source: Bloomberg)
The euro fell against the dollar on concern stress-test results today will reveal loan losses at European banks, reducing demand for the region’s assets.
Europe’s currency dropped against 10 of its 16 major counterparts on concern the findings will force the region’s banks to raise funds to bolster their balance sheets. The yen pared losses on speculation Japan’s exporters bought the currency. The British pound strengthened before a report today that is forecast to show the nation’s economic growth doubled in the second quarter.
“The stress tests won’t deliver a perfect score,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender. “I’m betting the results will revive negative sentiment about the euro.”
The euro fell to $1.2868 as of 7:36 a.m. in London from $1.2893 in New York yesterday, set for a 0.5 percent weekly loss. It traded at 111.99 yen from 112.10. The yen was at 87.05 per dollar from 86.95, after earlier falling as low as 87.24. The pound rose to $1.5290 from $1.5259, and appreciated to 84.27 pence per euro from 84.49 pence.
European regulators are scrutinizing banks to assess if they have enough funds, defined as a Tier 1 capital ratio of at least 6 percent, to withstand a recession and sovereign debt crisis, according to a document from the Committee of European Banking Supervisors. Lenders that fail will be made to raise additional capital. The results will be published by CEBS and national regulators from 6 p.m. Brussels time today.
Bank Breakdowns
Banks may give breakdowns of their sovereign debt holdings. Regulators have asked them to publish a list of each lender’s gross and net exposure to central and local governments in 30 countries in the region, including Greece, Spain, Ireland, Italy and Portugal, according to a July 15 confidential draft template by CEBS that was obtained by Bloomberg News.
Several Spanish savings banks that have participated in mergers and received money from Spain’s bank rescue fund may fail stress tests, El Pais reported today, citing unidentified people in financial markets.
Europe’s shared currency has declined 8.3 percent this year, the biggest loss among its developed-world counterparts, according to Bloomberg Correlation-Weighted Indexes. The dollar has gained 3.3 percent, and the yen has advanced 12 percent.
Japan Exporters
The yen trimmed this week’s drop against the dollar on speculation Japanese exporters purchased the currency.
The nation’s large manufacturers expect the currency to average 90.16 against the dollar in the six months to March 2011, according to Bank of Japan’s Tankan survey released July 1.
“There’s talk that exporters are buying the yen,” said Masato Mori, a senior manager at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “In Tokyo time, the market is sensitive to capital flows from Japanese firms.”
The pound headed for its first weekly advance against the euro region’s single currency in four.
Gross domestic product rose 0.6 percent in the three months through June after increasing 0.3 percent the previous quarter, according to a Bloomberg news survey. The data, the first for the quarter from a Group of Seven nation, will be released by the Office for National Statistics at 9:30 a.m. in London.
The pound has fallen 3 percent against its global peers this year, according to the Bloomberg Correlation-Weighted Currency Indices.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.
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