The US dollar declined against most major currencies after Treasury Secretary Timothy Geithner said the “vast majority” of US banks have sufficient capital, thereby reducing the greenback’s safe haven appeal. The US dollar also suffered some losses on speculation that concerns are easing about bank balance sheets and this will prompt investors to shift funds to higher-yielding assets.
The euro rose broadly as extreme risk aversion leveled off on some positive signs for the economy and banking system. Stronger euro zone PMI data and an industry report showing German investor confidence climbed to the highest level in almost two years in April provided encouraging signs that are adding to the green shoots story, not just in Europe but globally. The news prompted gains in equities, although caution over the financial system kept those gains limited. The single currency may have the potential to move higher, especially if equity markets continue to stabilize.
Sterling gained versus the US dollar after results from Tesco Plc and Burberry Group Plc bolstered speculation the UK economic slump may be easing. Some investors also took advantage of the previous day's tumble to buy, though the prospect of Britain's budget deficit ballooning to a record limited those gains.
The Japanese yen gave up early gains and slipped broadly against the US dollar and other major currencies as US stock futures and Tokyo share prices turned positive, prompting buybacks of higher-yielding currencies against the yen. The Japanese currency also fell after Credit Suisse Group AG, the biggest Swiss bank by market value, reported first-quarter profit that exceeded analysts’ predictions.
The Canadian dollar strengthened from a three-week low as easing concern about the level of capital at US lenders overshadowed the Bank of Canada’s reduction in its key interest rate to a record low. The Canadian central bank cut its target rate for overnight bank loans to 0.25 percent, the lowest since the institution was established in 1934. The loonie, however, gained as much as 0.5 percent as North American stocks rallied after Treasury Secretary Timothy Geithner said most US banks have more capital than needed.
The Australian and New Zealand dollars rose on speculation signs of a thaw in credit markets will revive investors’ appetite for risk. Both currencies drew support from higher regional stock markets, with most investors awaiting the results of stress tests on US banks for further direction. Any bad news in these stress tests could hurt appetite for riskier assets and higher-yielding currencies like the Aussie and kiwi.
10-Year Treasury Note Yield: 2.949%
Dow Jones Industrial Average: 7,889.20 +4.70