FOREX-Euro slides, Europe banking issues in focus

* Euro takes a hit as Europe banking concerns rekindled

* Yen, Swiss franc rally on growing risk aversion

* Aussie hits day’s low after PM secures minority govt

(Adds comment, detail, updates prices)

By Naomi Tajitsu

LONDON, Sept 7 (BestGrowthStock) – The euro fell (Read more about the trembling euro. ) broadly on Tuesday
after rekindled concerns about the European banking sector
prompted investors to sell higher-risk currencies.

The yen and the Swiss franc rallied, supported by their
safe-haven appeal after a Wall Street Journal report
highlighting the shortcomings of European bank stress tests
earlier this year spurred risk aversion.

The report came after Germany’s banking association said on
Monday the country’s 10 biggest banks may need 105 billion euros
of additional capital under revamped rules. [ID:nLDE6850Q9]

Worries about the banking sector also widened yield spreads
between peripheral euro zone government bonds and their German
counterparts — considered the safest in the euro zone — with
Portuguese and Irish spreads widening on Tuesday.

The cost of insuring those countries’ debt against default
also rose, further chilling demand for the single currency.

“For the moment, the news about the German banks and the
stress tests will weigh on risk appetite,” said Sven Schubert,
currency analyst at Credit Suisse in Zurich.

“But concerns about the tests were already known, so the
impact may be short-lived.”

By 0933 GMT, the euro (EUR=: ) had fallen nearly 1 percent on
the day to a session low of $1.27560. It retreated from $1.2920
hit on Monday, its highest in nearly three weeks.

“We’ve seen the euro’s correction since June take it to the
$1.30 region, and people are getting worried about more negative
news about the euro zone banking sector in the third and fourth
quarter,” said Chris Turner, currency strategist at ING.

Still, further losses were limited on Tuesday due to broad
demand for euros below $1.28, with traders saying central banks
were picking up the single currency at the day’s low.

The euro’s losses helped push the dollar (.DXY: ) 0.6 percent
higher versus a currency basket to 82.545, recovering from a
slide to its weakest in more than three weeks on Monday.

AUSSIE SLIDES

Against the yen, the single currency (EURJPY=R: ) fell 1.2
percent on the day to 107.10 yen.

The Japanese currency rallied across the board, pushing the
dollar (JPY=: ) down 0.3 percent to 83.72 yen, near a 15-year
trough of 83.58 yen touched last month.

The yen hit the day’s high after Bank of Japan Governor
Masaaki Shirakawa said monetary authorities could not control
forex rates, increasing speculation Japan was not preparing to
act to stem yen strength at the moment. [ID:nTOE68606B]

“(Shirakawa) has essentially ruled out intervention in the
near term,” CitiFXWire analysts said in a client note adding
that the statement helped to encourage yen bulls.

Shirakawa’s comments followed the BOJ’s decision to hold off
from additional monetary policy easing. [ID:nTOE68602K]

Japanese Finance Minister Yoshihiko Noda said the government
would take firm action on currencies when needed, adding that
recent moves were clearly one-sided. [ID:nTKX006976]

Analysts said the difference in stance between the
government and the central bank clearly put the onus on the
government to take decisive action to rein in yen strength.

The market’s focus on risk aversion also boosted the Swiss
franc, pushing the euro (EURCHF=: ) 0.8 percent lower to 1.2920
francs. The dollar (CHF=: ) was down 0.2 percent at 1.0128 francs.

The Australian dollar hit the day’s low of $0.9094 (AUD=D4: )
after Australian Prime Minister Julia Gillard secured a minority
government. [ID:nSGE6850I3]

It initially gained as the deal ended weeks of uncertainty,
but its rally was fleeting and the Aussie suffered on
speculation the government would press ahead with a mining tax.

(Editing by Nigel Stephenson)

FOREX-Euro slides, Europe banking issues in focus