The euro regained more than 1 per cent today from this year's lows against the dollar and the yen as dealers grew wary of possible central bank action to stem its rapid decline.
Intervention jitters grew in holiday-thinned European markets after Japan's top financial diplomat, Mr Haruhiko Kuroda, said the euro's recent sharp fall was "inappropriate" and that action would be taken if unnatural currency moves continued.
His comments come after the euro has lost as much as 3 per cent against the dollar and 8 per cent against the yen this week on signs that euro zone growth is slowing at a time when inflation pressures are limiting scope for interest rate cuts.
"The euro has had a sharp move lower, and intervention has become a distinct possibility," said Lehman Brothers currency strategist Ms Francesca Fornasari.
Gloom over the euro zone's economic outlook also lifted slightly today after data showed Italian consumer confidence rose to its highest in 11 years in May, boosted by hopes of political stability despite weakening economic growth across Europe.