(Bloomberg) -- The yen rose on speculation stress tests on the largest U.S. banks will show additional loan losses, boosting the currency’s appeal as a refuge from the global financial crisis.
The Japanese currency also advanced after a government report showed a slump in the nation’s exports slowed in March, stemming a four-month streak of record declines and adding to signs the recession may be easing. The pound fell as data showed Britain’s deficit and unemployment increased before Chancellor of the Exchequer Alistair Darling delivers his budget.
“Across the board it’s still a very precarious situation,” said Geoffrey Yu, a currency strategist in London at UBS AG, the world’s second-largest foreign-exchange trader. “The stress tests are more trouble than they’re worth and people have second thoughts about jumping back into risk.”
The yen climbed to 126.74 per euro as of 6 a.m. in New York, from 127.81 yesterday, when it reached 126.09, the strongest level since March 16. Japan’s currency advanced to 97.88 per dollar, from 98.73, as investors reversed trades funded in the yen and the dollar to reduce risk.
The dollar was little changed at $1.2944 per euro. It will trade at $1.25 and 95 yen in three months, Yu said.
The U.S. government’s stress tests on the 19 largest U.S. banks are increasingly focusing on the quality of loans the lenders made after finding wide variations in underwriting standards, according to a regulatory official.
Risk Averse
Worldwide losses tied to loans and securitized assets may reach $4.1 trillion by the end of 2010 as the recession and the credit crisis exact an increasing toll on financial institutions, the International Monetary Fund said yesterday.
“The IMF’s gloomy prognosis is an added factor helping to define the risk appetite environment,” Steve Pearson, a London- based currency strategist at Bank of America Securities-Merrill Lynch, wrote in a note today. “This is leaving foreign-exchange price action biased toward dollar and yen outperformance.”
The Federal Reserve plans to release results of stress tests on banks on May 4. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen.
The dollar fell against the euro yesterday after Treasury Secretary Timothy Geithner told a congressional panel that the “vast majority” of U.S. banks have more capital than needed. He also said there are signs of “thawing” in credit markets.
Japan’s currency also approached a five-week high versus the euro after a government report showed the nation’s overseas shipments fell 45.6 percent from a year earlier, compared with February’s unprecedented 49.4 percent plunge. Economists predicted a 46.4 percent drop.
‘Positive Influence’
“Improvement in terms of trade could have a positive influence on the Japanese economy,” said Susumu Kato, chief economists at Calyon Securities in Tokyo. “The yen will be traded in a stable manner.”
Australia’s dollar slid against the greenback and the yen after a report showed the nation’s inflation rate fell to an 18- month low, giving policy makers more room to cut interest rates. The Australian dollar weakened to 70.32 U.S. cents, from 71.14 cents yesterday, and dropped to 69.12 yen, from 70.24 yen.
“With inflation working lower, they would be able to keep interest rates at low levels for a prolonged period,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “We are penciling in at least one more rate cut.”
Australia’s consumer price index rose 2.5 percent in the first quarter from a year earlier, after gaining 3.7 percent in the fourth quarter, the Bureau of Statistics said in Sydney.
Pound Drops
The British pound fell 0.8 percent to $1.4554. The U.K. budget shortfall may jump to 160 billion pounds ($232 billion), or 11 percent of gross domestic product, according to a survey of 24 economists conducted by the Treasury. Darling presents his figures at 12:30 p.m. in London.
U.K. unemployment rose 177,000 in the three months through February to 2.1 million, the most since Prime Minister Gordon Brown’s Labour Party came to power in 1997, according to the Office for National Statistics. The deficit almost tripled to 90 billion pounds in the fiscal year through March, the statistics office said.
The euro traded near the lowest level in more than a month against the dollar on concern disagreement is deepening among European Central Bank policy makers on measures needed to combat the recession.
“The anxiety about disparity on policy action among ECB policy makers is still strong,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “This may continue to outweigh the impact of yesterday’s better-than-expected ZEW survey.”
The Canadian dollar fell 0.5 percent to C$1.2413 per U.S. dollar before the Bank of Canada publishes guidelines for possible quantitative easing tomorrow. The central bank cut its key interest rate to a record low of 0.25 percent yesterday, and said it plans to leave it there for more than a year.
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
