The yen rose, snapping a two-day loss against the euro, as concern over the financial health of European banks and the pace of the U.S. economic recovery boosted demand for Japan’s currency as a refuge. The yen gained versus 15 of its 16 major counterparts on speculation stress-test results this week will show European banks require additional funds to cope with possible loan losses. The Dollar Index was near an 11-week low before Federal Reserve Chairman Ben S. Bernanke speaks on the economy and ahead of data that economists said will show initial jobless claims increased and existing home sales fell. Australia’s dollar slipped from near a two-month high. “Worries over the U.S. rebound and European banks’ stress tests are likely to underpin risk aversion,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The bias is for the yen to strengthen.” The yen climbed to 112.38 per euro as of 6:45 a.m. in London from 112.70 in New York yesterday, after dropping 0.7 percent over the past two days. The currency rose to 87.21 per dollar from 87.51, after advancing to 86.27 on July 16, the strongest level since Dec. 1. The greenback traded at $1.2884 per euro from $1.2880. Bernanke will deliver his semiannual report on monetary policy to the Senate Banking Committee today, and testify at the House Financial Services Committee tomorrow. U.S. policy makers trimmed growth forecasts for this year and next at the Federal Open Market Committee’s June meeting, according to minutes released July 14. ‘Undermine the Dollar’ There is speculation the Fed may announce fresh stimulus measures, such as cutting the interest paid on excess reserves, Mitul Kotecha, Hong Kong-based global head of foreign-exchange strategy at Credit Agricole CIB, wrote today in a note. “The downgrades to the Fed’s growth forecasts and recent relatively dovish FOMC minutes have helped to fuel such speculation, which if in any way confirmed by Bernanke, will act to undermine the dollar further,” he wrote. Initial jobless claims rose to 445,000 last week from 429,000 in the prior period, according to a Bloomberg survey before tomorrow’s Labor Department report. The same day, the National Association of Realtors will say sales of existing homes fell 9.9 percent in June, a separate survey showed. “Disappointing economic data and diminishing expectations the Federal Reserve will raise rates have pushed down the dollar,” said Satoru Ogasawara, a foreign-exchange analyst and economist in Tokyo at Credit Suisse AG. “The dollar may fall to 85 yen in the short term.” Rate Futures Futures on the Chicago Mercantile Exchange show a 49 percent chance the Fed will keep its benchmark rate between zero and 0.25 percent through its March 2011 meeting, up from 42 percent odds a month earlier. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, fell to 82.728 from 82.747. It declined to 82.085 July 16, the lowest level since May 3. European regulators plan to detail three scenarios when they publish their stress-tests results for 91 of the region’s banks on July 23, according to a document by the Committee of European Banking Supervisors. Banks will publish their estimated Tier 1 capital ratios under a benchmark for 2011, an adverse scenario and a third test that includes “sovereign shock,” according to a template prepared by CEBS for the banks and obtained by Bloomberg News. More Capital “There is a risk that some banks will need to raise more capital,” St. George Bank Ltd. analysts led by Justin Smirk, chief economist in Sydney, wrote today in a research note. The euro has declined 7.7 percent this year, the biggest loss among its developed-world counterparts, according to Bloomberg Correlation-Weighted Indexes. The dollar has gained 3.8 percent, and the yen has advanced 12 percent. Australia’s dollar fell against the U.S. currency and the yen on speculation a slowing global economy will prompt the central bank to keep interest rates unchanged next month. The statistics bureau will release inflation data on July 28. Consumer prices rose 2.9 percent in the first quarter from a year earlier, the most since late 2008, data showed in April. The Reserve Bank of Australia meets on Aug. 3. “Until CPI comes out, it’s difficult to see where the market’s going to get the next thrust in terms of pushing higher yields in the money market and therefore the Aussie dollar,” said Michael Katz, a currency fund manager at Tallship Investments in Sydney. “The odds are the RBA won’t be hiking in August and the idea of the Aussie going back into the 90s would require a rate hike.” Australia’s dollar dropped 0.2 percent to 88.21 U.S. cents, after rising to 88.71 cents on July 14, the strongest since May 14. It declined 0.5 percent to 76.93 yen. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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