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🇺🇸 *Stress Testing and Bank Capital Requirements* 📈\n\nGovernor Barr discusses the evolution of bank stress tests since the 2008 financial crisis. He argues that tying stress test results to capital requirements, while intended to increase transparency and predictability, has unintended consequences:\n\n- Reduced supervisory flexibility in assessing individual bank risk.\n- Increased risk of banks "gaming" the system to lower capital requirements.\n- Potential for reduced investment in risk management.\n\nBarr proposes decoupling stress tests from capital requirements. He suggests raising regulatory capital requirements across the board to compensate and using stress tests as a supervisory tool to:\n\n- Inform capital planning.\n- Identify vulnerabilities.\n- Maintain system stability.\n\nHe also proposes granting the Board authority to impose individualized capital requirements in exceptional cases based on specific risk profiles.\n\n*Outlook for USD*\nBearish 🐻. While the increased capital requirements could strengthen the banking sector in the long run, the decoupling of stress tests and associated uncertainty in the short term may put downward pressure on USD.\n

🇪🇺 *ECB Publishes Consolidated Banking Data* 📊\n\nThe European Central Bank (ECB) released consolidated banking data for March 2025. The data provides insights into the health and activity of the Eurozone banking sector. More details will be available on the ECB website. \n\n*Outlook for EUR*\n🐻 Bearish. Without details of the report's contents, it's difficult to project a positive impact. Any negative indicators within the banking data could weigh on the EUR.\n

🇺🇸 *US Current-Account Deficit Narrows Sharply* 📉\n\n- US current-account deficit shrank by a massive $188.5B (42.9%) to $251.3B in Q2 2025.\n- Deficit now represents 3.3% of GDP, down from 5.9% in Q1.\n- Primarily driven by a smaller deficit on goods, as imports fell significantly.\n- Exports of goods and services rose slightly, while imports dropped sharply.\n- Both receipts and payments of primary income increased.\n\n*Outlook for USD*\nBullish🐂. The significant narrowing of the current account deficit is generally seen as positive for the USD, suggesting improved trade competitiveness. Lower imports and increased exports can contribute to upward pressure on the currency.\n