The euro has continued to rally on speculation central banks will step in to buy the currency again if it resumes its decline. Traders are reluctant to ignore the Group of Seven's objective of curbing the euro's slide. "They do so at their peril," Mr Neil MacKinnon, senior currency strategist at Merrill Lynch International, warned yesterday.
"We have seen the low on the euro. I'm advising clients to rebuild long positions and the euro will regain some of the ground it's lost." The euro closed at $0.8863, from $0.8814 a day earlier.
Markets are also sitting on the sidelines ahead of the Danish referendum on joining the euro today. According to the latest opinion polls, the result is too close to call.
The outcome is likely to influence the strength of the euro. Rejection may fuel concern that Sweden and the UK would be reluctant to take on the euro, leaving only economically weaker Greece to sign up.
Traders are watching for a further intervention in the event of Denmark voting No. According to some analysts, another round of official euro purchases could propel the euro above $0.90, although probably only briefly.
A Yes vote is likely to add a couple of cents to the euro.
European officials have said central banks may intervene again. Bundesbank president Mr Ernst Welteke said the ECB "will continue to be vigilant". His French counterpart, Mr Jean-Claude Trichet, said a strong euro is in the interest of the euro zone and global economic stability. Speculation is also mounting about another interest rate increase. Euro zone money supply, the ECB's key inflation gauge, rose to 5.6 per cent in August, surpassing economists' forecasts for a 5.5 per cent rise and remaining above the bank's 4.5 per cent target. The ECB's governing council meets next Thursday.
