Euro against the dollar

The dollar and the yen strengthened against the remainder of the world’s 17 most-used currencies as investors sought refuge before tomorrow’s release of Federal Reserve stress tests that may show U.S. banks need more capital. The Australian and New Zealand dollars slid versus the greenback as U.S. equities declined, damping demand for higher-yielding assets.

“The ECB will at least announce something unusual,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “In terms of policy measures, they’ll be discussing the types of measures that would potentially weaken the euro.”

The euro slid to $1.3287 as of 9:18 a.m. in Singapore from $1.3330 in New York yesterday. It weakened to 130.82 yen from 131.73 yen. The dollar bought 98.46 yen from 98.82 yen. It climbed to $1.5019 versus the pound from $1.5090 and advanced to 1.1358 Swiss francs from 1.1322 francs.

The volume of foreign-exchange trading will likely be less than normal because of Japan’s “Golden Week” holiday today, Callow said. The MSCI Asia-Pacific excluding Japan Index was little changed at 297.48, following a 0.4 percent decline in the Standard & Poor’s 500 Index.

ECB Meeting Tomorrow

The ECB will probably lower the benchmark rate by a quarter-percentage point to 1 percent tomorrow, according to a Bloomberg survey of economists. That would be the lowest level since the bank took charge of monetary policy in 1999.

“Our economics team expects them to cut rates 25 basis points to 1 percent and announce longer-term refinancing operations,” analysts led by Daniel Tenengauzer, New York-based head of global foreign-exchange strategy at Bank of America- Merrill Lynch, wrote in a research note yesterday. “We continue to expect the euro lower through the year.”

ECB council member Athanasios Orphanides said yesterday the financial crisis needs “drastic” measures. Orphanides and fellow member George Provopoulos from Greece have indicated they may support cutting the target rate to less than 1 percent and buying debt to pump money into the economy, which the European Commission this week forecast will shrink 4 percent this year.

Fed’s Stress Tests

The Japanese and U.S. currencies gained as the Fed plans to deliver results of stress tests on U.S. banks that may show about 10 of 19 banks reviewed need additional capital, people familiar with the matter said.

“Investors are likely to be risk averse ahead of the release of the results,” said Norifumi Yoshida, vice president of the trading section in Singapore at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank. “We can’t rule out the possibility that the yen and the dollar will be bought” as a shelter from the crisis, he said.

Banks are formulating plans for filling their capital requirements, much of which would likely come from conversions of preferred shares, the people said. Many of the 19 lenders under review and the government are set to discuss publicly the examinations after markets close tomorrow, the people said.

The Dollar Index, used by the ICE to track the greenback versus the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was at 84.256 today from 84.157 yesterday.

Australia’s dollar fell to 73.79 U.S. cents from 74.26 cents and dropped to 72.63 yen from 73.38 yen in New York yesterday. New Zealand’s dollar slipped to 57.80 cents from 58.04 cents, and weakened to 56.89 yen from 57.34 yen.

The benchmark interest rate is 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia and 2.5 percent in New Zealand.