By JESSICA MEAD LONDON—The dollar rallied against other currencies in late Friday-morning trade in Europe on Italian bank credit concerns, reversing earlier losses after robust German business confidence gave investors renewed hope that a slowdown in the global economy would pass after weak data this week. The euro was recently trading at $1.4204 compared with $1.4257 late Thursday in New York. The dollar was at ¥80.18 compared with ¥80.50, while the euro was at ¥113.91 compared with ¥114.78. Meanwhile, the pound was trading at $1.6007 compared with $1.6000 late Thursday in New York. The abrupt reversal in currency trader sentiment came after trading in leading Italian bank stocks was suspended after these fell sharply. The development followed a warning from Moody's Investors Service late Thursday that it may cut the credit ratings of 16 Italian banks. It also added to wider euro-zone debt concerns in the wake of 11th-hour efforts to stave off a default in Greece, even as hopes grew that the euro zone would muddle through following overnight news that Greece had reached an agreement with the International Monetary Fund and the European Union on a five-year austerity program. "There are still substantial uncertainties because the new Greek packages come with additional conditionality, including another €5 billion in extra fiscal cuts which will be difficult to get through parliament," said Hans Redeker, head of global currency strategy at Morgan Stanley. Earlier in the session, stronger-than-expected German business confidence data for June and rising equity markets encouraged European investors to close out positive dollar bets ahead of the weekend. "The Ifo data was very positive, as most investors thought the index topped out last month and expected a slightly lower number," said Peter Kinsella, a currency strategist at Commerzbank in London. Traders reported that low volumes and stop-losses being taken out amplified the dollar's earlier slide. The euro briefly climbed to just above $1.43 against the dollar while the Australian dollar touched $1.06. The yen also notched up some chunky gains against the dollar, taking out stops on its way up. Sterling also benefited from the morning antidollar move, but the rally fizzled out just ahead of $1.605. The pound shrugged off the inaugural report from the U.K.'s new Financial Policy Committee, which indicated that U.K. banks' exposure to troubled euro-zone governments was limited but noted that there was still a risk of contagion via French and German banks.

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