US Banks Need Fresh Capital

The results of US banks stress tests were not enough to dampen risk sentiment among investors and rising risk sentiment has been affecting global currency exchange rates. The stress tests gauge whether the US’s largest 19 banks have enough capital to weather a deep recession. The stress tests revealed that Bank of America will need to raise $33.9 billion, Wells Fargo $13.7 billion, Citigroup $5.5 billion, and GMAC $11.5 billion. The banks will have to raise the needed capital in six months.

Yen Pressured

U.S. Treasury Secretary Timothy Geithner said that none of the 19 banks undergoing stress tests are at risk of insolvency which raised forex investor sentiment. The yen to dollar rate was affected as investors dumped the yen in favor of higher yielding assets. Akira Takeuchi of Chuo Mitsui Trust and Banking said, “The yen was sold, especially against higher-yielding currencies, as risk aversion fell on the view that the stress tests probably won’t be as bad as expected and on data that suggested the worst for the U.S. economy may be over.”

Stocks Rally

Stock markets rallied after the results of the stress tests were known affecting currency exchange rates. The dollar vs. yen rose declined 0.3% on Friday to 98.91 yen. The euro to dollar exchange rate was $1.3516 on Friday. Better than expected US job figures also boosted risk appetite and is seen as another factor affecting currency exchange rates.

ECB Cuts Rates as Expected

Actions to be taken by the European Central Bank have affected the euro to dollar exchange rate. The central bank cut rates to a record low and announced a plan to purchase covered bonds to stimulate credit markets and boost the Euro Zone economy. Some analysts caution that while things may not get worse recovery will be slow and painful.

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