The dollar traded near a one-month low versus the euro on speculation banks will raise sufficient capital to weather the recession, reducing demand for the safety of the world’s main reserve currency. The U.S. currency declined to the weakest level against the pound since January after a drop to a record low in the London interbank offered rate that banks charge for three-month dollar loans indicated less hoarding of cash. The Australian dollar rose to the highest against the greenback since October after the Reserve Bank held the target lending rate at 3 percent. “It’s still a risk-friendly environment,” said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. “The dollar will be struggling with others.” The U.S. currency traded at $1.3416 per euro at 9:38 a.m. in New York, compared with $1.3406 yesterday. It touched $1.3438, the weakest since April 6. The dollar was little changed at 98.87 yen, compared with 98.80. The euro traded at 132.68 yen, compared with 132.45. Banks are formulating plans for filling their capital requirements, much of which would likely come from conversions of preferred shares, people familiar with the situation said. The Federal Reserve plans to deliver results of stress tests on U.S. banks to executives today that may show about 10 companies need additional capital to weather a deeper recession, the people said. Falling Libor Three-month Libor for dollars decreased two basis points, or 0.02 percentage point, to 0.99 percent, according to the British Bankers’ Association. The previous all-time low was 1 percent, reached in June 2003. The Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed today to the lowest level since Sept. 1. The dollar declined as much as 1 percent to $1.5162 against the pound, the weakest level since Jan. 9. The greenback lost 1.5 percent to 58.47 U.S. cents versus New Zealand’s dollar. Australia’s dollar appreciated for a third day against the greenback, rising 0.8 percent to 74.61 U.S. cents after policy makers left the overnight cash target at the lowest level in 49 years. Reserve Bank Governor Glenn Stevens said government spending, lower borrowing costs and a pickup in China’s economy will drive a rebound. The Aussie touched 74.76 U.S. cents, the highest level since Oct. 6. The euro region’s economy will shrink 0.1 percent in 2010, and inflation will average 0.4 percent this year, which would be the lowest since the currency’s introduction a decade ago, the European Commission said yesterday. While the European Central Bank may cut its main rate to a record low on May 7, President Jean-Claude Trichet declined in recent weeks to comment on what other steps the central bank may take to stem the recession. “The ECB needs a package with a ‘shock and awe’ effect,” UBS AG analysts led by Mansoor Mohi-uddin, Zurich-based chief currency strategist, wrote in a research note yesterday. “A token or tame step, which some still expect, would add very little value to policy. We continue to see the euro-dollar at $1.30 in one month.”

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