Friday, Jul 23, 2010
By Frances McInnis
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The euro briefly fell to an intraday low below $1.28 Friday amid chatter about the criteria of stress tests of European banks.
Investors are nervous about the details of the stress tests, said Hans Redeker, global head of foreign exchange strategy at BNP Paribas in London, particularly speculation the haircut applied only to the trading book, not the investment book.
"The market has interpreted it negatively, that the stress was not rigorous," Redeker said.
The tests, which gauge whether Europe's banking sector has sufficient capital, are the day's biggest event, and the outcome could determine the directions of the euro as well as the dollar next week, said analysts.
If too many banks fail, it could spark panic about the health of the euro-zone banking sector; if too many banks pass, markets may discount the tests as not credible.
Friday morning, the euro was at $1.2813, from $1.2892 late Thursday, according to EBS via CQG. The dollar was at Y87.26 from Y86.93, while the euro was at Y112.84 from Y112.05. The U.K. pound was at $1.5369 from $1.5265. The dollar was at CHF1.0518 from CHF1.0428.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 82.918 from 82.611.
The London-based Committee of European Banking Supervisors has tested 91 euro-zone banks to see whether they would fall short of minimum capital requirements under different adverse scenarios.
A steady drip of leaks and optimistic predictions from lenders, central bankers and politicians suggests that the vast majority of banks in even the most troubled economies are likely to pass.
That has prompted economists to wonder whether the tests would be sufficiently stringent to convince investors that Europe's banks had put the debt crisis behind them.
Before falling steadily through the morning, the euro had spiked to $1.2966 overnight after business sentiment data out of Germany beat expectations, added to a string of better-than-expected data releases out of Europe and the U.S.
-By Frances McInnis, Dow Jones Newswires; 212-416-3417; frances.mcinnis@dowjones.com
(END) Dow Jones Newswires
July 23, 2010 09:41 ET (13:41 GMT)
