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, 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.

Source: Bloomberg.com