Euro weakens against the dollar as equity markets fall

The euro finished down against the dollar yesterday, losing 0.94 cents on the day as concerns about the US stimulus package caused stock markets to plummet, which in turn undermined the euro and supported the dollar. A "stress test" for the largest US financial institutions included in the plan sparked a slump in the banking sector, as investors worried about which banks are strong enough financially to make the grade.

All banks with more than $100 billion in assets will be required to submit to the stress test. That level encompasses such institutions as J.P. Morgan Chase, Citigroup, Bank of America and Wells Fargo; shares of those banks dropped by between 10% and 19% following the announcement. Some other banks that will likely face the test fell even more steeply - shares of SunTrust Banks, which has more than $150 billion in assets, slumped 27%, while Regions Financial with more than $140 billion, lost 30.

The euro has recovered a little lost ground this morning following the release of German CPI data, which showed annual inflation had slowed to 0.9% in January from 1.1% in December, as expected. However, the euro is still trading below the $1.30 level as risk aversion continues to support the dollar.