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The euro declined, approaching a two- week low against the dollar, as a European Union document on bank stress tests deepened concern that the region’s debt crisis may intensify.
The euro also dropped against the yen as an internal EU document dated July 7 said banks that fail this year’s round of tests may need to present plans for making up their capital shortfall by the end of September. Governments should be ready to step in and help banks as a last resort, according to the preliminary document, which was prepared by government officials from the 27-nation region.
“It is the recognition that there will be more pressure on local governments to prop up their banking systems” that’s weakening the euro, said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “German Landesbanken and Spanish banks are considered the major pressure points.”
The pound fell to the lowest in more than a week against the dollar and gilts rallied as a measure of inflation slowed to the least since September, weakening the case for higher interest rates.
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