Euro rebounds on ECB intervention talk

By Julianne Pepitone and Ben Rooney, staff reporters


NEW YORK (CNNMoney.com) -- The euro recovered from earlier losses Thursday amid speculation that the European Central Bank could intervene in the currency market, following signs the Swiss National Bank is already doing so.

What prices are doing: The dollar was down 1.3% against the euro to trade at $1.2574, after trading near a high of $1.26 earlier in the session.

The dollar was flat versus the British pound to $1.4454. Earlier, it had gained over 1% against the U.K. currency.

Against the Japanese yen, which is considered a safe haven asset, the dollar was down 1.6% at ¥90.22.

What's moving the market: The euro recovered sharply from an earlier sell-off against the dollar as traders rushed to unwind bets against the shared currency following a spike in the Swiss franc.

At around 1 p.m. ET, the Swiss franc jumped over 1% against the euro, suggesting the SNB was selling the shared currency, according to Kathy Lien, head of currency research at trading firm GFT.

The move raised bets the ECB could move to intervene in the currency market, something the central bank has not done since 2000, she said.

"There's a lot of speculation in the markets about intervention," said Lien. "Traders are very short the euro and any hint of intervention can cause sharp rallies."

However, it's unlikely the ECB would intervene in the currency market without first announcing its plans to maximize the impact, she said.

"It serves them no purpose to be subtle," she said, adding that many traders still suspect a stealth intervention.

The dollar had strengthened against the euro earlier in the session as investors flocked to the U.S. currency for safety. Stocks fell sharply due to ongoing fears that the European economy could slip back in to recession.

Earlier this week, Germany's financial regulator banned "naked" short sales of debt securities issued by euro zone countries, as well as the country's ten leading financial companies. The restrictions will apply until March 31, 2011.

That move, coupled with budget cut announcements from Spain, Portugal and other debt-choked countries, has cast a pall over investors' hope for clarity on Europe's future. To top of page

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