Euro Falls as Stress Test Results Fail to Alleviate Banking Risk Concern
The euro fell, ending its longest weekly rally in nine months versus the dollar, on concern stress tests of European Union banks failed to identify sources of weakness that would aggravate the region’s debt crisis. The 16-nation currency depreciated against the majority of its most-actively traded counterparts, slumping the greatest amount versus growth-sensitive currencies such as the Australian and New Zealand dollars. Tests showing that only seven banks flunked the EU’s crisis scenario failed to ease concern lenders may lack sufficient capital, pushing the euro to reverse gains recorded earlier in the week. “The euro’s definitely had its ups and downs,” said Vassili Serebriakov,<http://search.bloomberg.com/search?q=Vassili%20Serebriakov,&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja>a currency strategist at Wells Fargo & Co. in New York. “Markets were questioning whether the stress tests were stressful enough, in other words, whether they were stringent enough.” The 16-nation currency fell 0.2 percent this week to $1.2909 yesterday in New York, from $1.2930 on July 16. The yen weakened 1 percent to 87.46 per dollar from 86.57 last week. The euro slumped 3.1 percent to A$1.4414 versus Australia’s currency and 2.5 percent to NZ$1.775 against its New Zealand counterpart. The euro gained yesterday as traders closed out bets that the currency would weaken further when equities rallied. The yen extended its decline versus the dollar as Japanese policy makers signaled for a third day that a stronger currency poses a danger to growth, spurring speculation they will take steps to counter that risk. Hungary’s forint snapped a three-day gain as Moody’s Investors Service said it may cut the nation’s credit rating. Bank Test Results Seven European Union banks failed the region’s stress tests with a combined capital shortfall of 3.5 billion euros ($4.5 billion), according to the Committee of European Banking Supervisors, which coordinated the initiative. EU regulators scrutinized 91 of the bloc’s banks to assess whether they have enough capital to withstand a recession and sovereign-debt crisis, with a Tier 1 capital ratio of 6 percent as a floor. Governments are seeking to reassure investors about the health of financial institutions after the debt crisis pummeled the bonds of Greece, Spain and Portugal. The evaluations took into account potential losses only on government bonds the banks trade, rather than those they are holding to maturity, according to CEBS. That means the tests are set to ignore the majority of banks’ holdings of sovereign debt, investors said. ‘Lack of Creditability’ “There’s a lack of credibility,” said Brian Dolan,<http://search.bloomberg.com/search?q=Brian%20Dolan,&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja>chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “They don’t think the scenarios were stressful enough.” Regulators tested portfolios of sovereign five-year bonds, assuming a loss of 23.1 percent on Greek debt, 12.3 percent on Spanish bonds, 14 percent on Portuguese bonds and 4.7 percent on German state debt, according to CEBS. The European currency fell against 14 of its 16 most-traded counterparts this week, rising against the yen and franc. The shared currency has climbed 5.5 percent against the dollar in July. Futures <http://apps/quote?ticker=.ECLRG:IND> traders decreased their bets for a third week that the euro will decline versus the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain, known as net shorts, was 24,251 on July 20, compared with net shorts of 27,050 a week earlier. Long Road Ahead “What investors recognize and will continue to believe is that the road for euro-zone banks and euro-zone policy makers is a long one,” said Samarjit Shankar<http://search.bloomberg.com/search?q=Samarjit%20Shankar&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja>, a managing director for the foreign-exchange group in Boston at BNY Mellon, the world’s largest custodial bank, with more than $20 trillion in assets under administration. “It’s going to boil down to fundamentals.” Europe’s shared currency has declined 8.1 percent this year, the biggest loss among its developed-world counterparts, according to Bloomberg Correlation-Weighted Indexes. The dollar has gained 3.1 percent, and the yen advanced 10 percent. The 16-nation currency may retrace its 8 percent rally since trading at the four-year low of $1.1877 on June 7 as investors borrow euros and sell them to purchase assets in other nations, according to Sebastien Galy<http://search.bloomberg.com/search?q=Sebastien%20Galy&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja>, a currency strategist at BNP Paribas SA in New York. Funding With Euros “The euro’s likely seen its top,” Galy said. “The question going forward is whether people are going to make a cyclical bet the euro versus the dollar as a funding currency.” The euro carry trade investing in Brazilian reais, South African rand and Australian and New Zealand dollars earned as much as 17 percent this year through June 28 before the shared currency’s rally started eroding profits from the trade, according to data compiled by Bloomberg. A similar trade funded in yen has lost 5 percent so far this year, while a dollar-carry strategy made 2 percent. “An abrupt drop in stock prices or an appreciation in the yen could hurt the economy” because Japan relies on overseas demand, National Strategy Minister Satoshi Arai<http://search.bloomberg.com/search?q=Satoshi%20Arai&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja>said in Tokyo. Cabinet Office official Keisuke Tsumura<http://search.bloomberg.com/search?q=Keisuke%20Tsumura&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja>said the yen, which has risen 9 percent since early May, has been “a bit too high.” Japan’s authorities haven’t intervened to sell yen in the currency market since 2004, and Group of Seven members have refrained from coordinated intervention for almost a decade, since an effort in 2000 to buttress the euro. Hungary’s forint dropped 2 percent this week against the euro to 287.86. Moody’s placed the nation’s Baa1 rating, its third-lowest investment grade, on review for possible downgrade. -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. 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