Dollar May Drop as Geithner’s Bank Comments Damp Refuge Appeal

April 22 (Bloomberg) -- The dollar may extend declines against major currencies after Treasury Secretary Timothy Geithner said the “vast majority” of U.S. banks have sufficient capital, reducing the appeal of the greenback.

The yen was little changed versus the euro and the dollar after a government report showed exports shrank at a slower pace in March. The Australian currency weakened against the greenback before a report economists say will show the annual inflation rate fell to the lowest since the third quarter of 2007, giving policy makers more room to lower interest rates.

“Receding concerns about financial turmoil reduce demand for safe-haven currencies,” said Masashi Hashimoto, senior strategist at Bank of Tokyo Mitsubishi-UFJ Ltd., a unit of Japan’s biggest lender. “This change of market sentiment may support capital inflow into emerging currencies.”

The dollar traded at $1.2934 per euro as of 9:02 a.m. in Tokyo from $1.2948 in New York yesterday. The greenback touched $1.2889 per euro on April 20, the strongest level since March 16. The yen was at 127.56 per euro from 127.81 yesterday, when it weakened from a one-month high of 126.09. The U.S. currency was at 98.58 yen, from 98.73.

Australia’s dollar fell to 70.68 US cents from 71.14 cents.

Geithner told a congressional panel yesterday that most U.S. banks have more capital than needed. He also said there are signs of “thawing” in credit markets and some indication that confidence is beginning to return.

Stocks Gain

The MSCI Asia Pacific Index of regional stocks gained 0.4 percent after the Standard & Poor’s 500 Index rose 2.1 percent yesterday.

Japan’s custom-cleared exports fell 45.6 percent last month from a year earlier, following a record drop of 49.4 percent in February, the Ministry of Finance said in Tokyo.

Worldwide losses tied to loans and securitized assets may reach $4.1 trillion by the end of 2010 as the recession and the credit crisis exact a higher toll on financial institutions, the International Monetary Fund said yesterday.

The Federal Reserve plans to release results of “stress tests” on banks on May 4. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen.

“We could be at the start of a larger risk capitulation trade over the next few weeks,” said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital Group in Bedminster, New Jersey. “The banks have no clothes and they’re about to be exposed.”