Euro up after report on bank stress tests, short-covering as US$ declines

Frankfurt (Oct 24)  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 U.S. 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 U.S. 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.

Bloomberg News' report said that 105 banks had passed the ECB's test, known as the comprehensive assessment, and that negotiations were continuing with about 10 banks shown to have a net capital shortfall.

The euro zone's 130 biggest banks received the European Central Bank's final verdict on their finances on Thursday after a review aimed at drawing a line under persistent doubts about the health of the region's banking sector. They will not be made public until 1100 GMT on Sunday.

In mid-morning New York trade, the euro was near $1.27, up from Thursday's two week low. It traded flat against the Japanese yen near 137. The dollar was off around 108 yen.

The dollar index, which measures the greenback against its major trading partners' currencies, was down 0.10 percent, but on track to end the week up 0.75 percent.

The Fed's statement will be parsed for clues on how quickly the central bank may start raising interest rates, now not expected until late 2015.

Elsewhere, sterling rose to $1.6098, after the GDP data showed Britain's economy grew by 0.7 percent in the third quarter, down from 0.9 percent the quarter before, but in line with economists' expectations.

Source: Reuters