Home Forex Market News Euro Rises Versus Most Peers as Stress Tests Ease Bank Concern

Euro Rises Versus Most Peers as Stress Tests Ease Bank Concern

The euro rose versus most of its major peers after the results of European Central Bank stress tests eased concern that some of the region’s lenders’ balance sheets were too weak.

The single currency strengthened to a two-week high versus the yen before a report today from the Ifo institute forecast to show business confidence stabilized in Germany, the currency bloc’s biggest economy. Australia’s dollar and the Korean won gained along with regional stocks. The greenback weakened amid declining bets for an early interest-rate increase by the Federal Reserve.

“If the Ifo survey comes in as the market expects, worries about Germany will be scaled back, and the euro will rise,” said Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services. “The results of the stress tests have already relieved some concerns.”

The euro added 0.3 percent to $1.2704 at 1:30 p.m. in Tokyo from Oct. 24. It rose 0.1 percent to 137.21 yen after earlier touching 137.47, the most since Oct. 9. The dollar slipped 0.2 percent to 107.98 yen.

The Australian dollar rose 0.2 percent to 88.13 U.S. cents, while the won gained 0.5 percent to 1,052.45 per dollar. The MSCI Asia Pacific Index (MXAP) of stocks added 0.5 percent.

New Zealand markets were closed for the Labour Day holiday.

Stress Tests

The ECB-led stress tests identified a total capital shortfall of 25 billion euros ($32 billion) as of the end of 2013, all but 6.35 billion euros of which has now been made good by banks. None of Europe’s largest banks were found lacking. No French, German or Spanish institutions were required to find more capital.

The stress tests should allay concerns about the health of euro-area banks, “and may provide support to risk assets and the euro,” Australia & New Zealand Banking Group Ltd. analysts, led by senior economist Cherelle Murphy, wrote in a report today. “With the ECB’s Asset Quality Review now out of the way, the euro will be more responsive to the data, while the Australian dollar should continue to perform well.”

The Ifo institute’s German business climate index, based on a survey of 7,000 executives, was little changed at 104.5 in October, according to the median estimate of economists surveyed by Bloomberg News. The gauge was at 104.7 in September, after declining at least 1.5 percent for three straight months.

The dollar weakened against most major peers as futures traders pared bets for an early Fed rate rise. The odds of the benchmark increasing from a range of zero to 0.25 percent by October 2015 were at 50 percent, down from 85 percent at the end of last month.

The Bloomberg Dollar Spot Index, which measures the greenback against 10 major peers, lost 0.2 percent to 1,066.42.

The Fed will announce the end of its quantitative-easing strategy of bond buying at its meeting on Oct. 28-29, according to every economists surveyed by Bloomberg.

“There’s some uncertainty about what the Federal Reserve will do after the end of quantitative easing,” Ueda Harlow’s Yamauchi said. “I don’t think it’s the right time to aggressively buy the dollar.”

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