Foreign exchange trading rooms burst into life yesterday as news of concerted central bank intervention flashed up on the screens. The intervention caught the market on the hop, with few having anticipated such action.
Most had thought that Europe would struggle to muster the political will for intervention and that the US lacked any real interest in curbing the dollar's strength.
Trading floors in the large banks resonated to the cry of "They're in" as news came through that each of the world's large central banks was participating in the action. It added to the surprise that intervention came before this weekend's G7 meeting. "The fact that the Federal Reserve was involved has been particularly striking," said Mr Jesper Dannesboe, chief currency strategist at Dresdner Kleinwort Benson in London.
But although the euro leapt around three cents against the dollar, the move did not leave many casualties on the dealing room. Few foreign exchange dealers had been betting aggressively against the euro.
Those who had laid modest bets that the currency would fall had already started to pull back ahead of the G7 meeting.
"We are not having to pull any of our traders off the ledge," said David Bloom, foreign exchange strategist at the investment banking arm of HSBC.
Excitement rather than panic was the order of the day, said Kit Juckes, chief strategist at Royal Bank of Scotland. "There has been precious little drama in the markets for some time now, with the euro grinding low rather than falling swiftly. Now we can look forward to a period of uncertainty, volatility and activity. There is nothing that traders like more," he said.
As the day wore on and the effect of the intervention started to wear off, foreign exchange traders braced themselves for further waves of intervention.
With the scale of yesterday's action thought to be relatively modest, many are now expecting more over coming sessions. "As ever, the first broadside has failed to sink the opposing battleship," said Mr Juckes. "We now wait to see how determined the central banks are to push the euro higher."
