Dollar rises against euro on concerns over European banks

The euro fell to US$1.2806 in Tokyo afternoon trade from US$1.2883 in London late Monday. The New York market was closed Monday for the Labor Day holiday.

The European single currency fell to 107.65 yen from 108.34 in London. The dollar edged down to 84.06 yen from 84.21 yen.

The euro lost ground on doubts over Europe's “stress tests” on major banks, said Toshihiko Sakai, senior dealer at Mitsubishi UFJ Trust and Banking.

The results, published in July, showed all but seven European lenders out of 91 banks were strong enough to withstand future financial crises.

But a report in the Wall Street Journal Tuesday said the tests “minimized” their debt risks and “understated some lenders' holdings of potentially risky government debt,” citing its own analysis.

“An examination of the banks' disclosures indicates that some banks didn't provide as comprehensive a picture of their government-debt holdings as regulators claimed,” it said.

Sakai said it was “natural” that the euro dropped.

“I'm bearish on the euro. Its recent rebounds had been unfounded,” he said.

The market showed muted reaction to the Bank of Japan's widely expected decision to keep its policy interest-rate target at 0.1 percent and take no further unconventional easing steps.

But the central bank was likely to face stronger pressure from the government to loosen policy even further to fight deflation and the strong yen, analysts said, after it announced an expansion to a loan scheme last week.

Currency traders were also showing caution ahead of key monetary policy decisions from central banks in Canada on Wednesday and Britain on Thursday.

The dollar also rebounded against other Asian currencies.

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