The euro rallied on Friday ahead of an official report on the health of the euro zone's main banks as investors continued a trend of covering their short-positions leading to buying of the currency against the US dollar. Despite Friday's weakness, the dollar is on track to close the week with a gain. Concerns about the first diagnosed case of Ebola in New York City, which stifled the dollar's rally late Thursday, have waned, strategists said.
The US Federal Reserve will meet next Tuesday and Wednesday, and the consensus view is that it will wrap up asset purchases under its third round of quantitative easing. A group of 25 banks have failed European stress tests, while up to 10 of those continue to have a capital shortfall, sources familiar with the matter told Reuters on Friday.
Bloomberg News first reported the results of the tests, which are due on Sunday. Currency strategists said this just added more fuel to the short-covering that has supported the euro's position. In mid-morning New York trade, the euro was up 0.15 percent at $1.2665, up from Thursday's two week low. It traded flat against the Japanese yen at 136.89. The dollar was off 0.10 percent to 108.12 yen. Elsewhere, sterling rose to $1.6098.
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