The euro has strengthened considerably as fears of intervention dominate the market.

The currency climbed above $0.93 for the first time in a month, having earlier gone above $0.92, buoyed by volatility on US equity markets and the possibility of intervention.

According to Mr Pat O'Sullivan, economist at AIB, there is no fundamental economic reason for the turnaround and it is mainly a result of people nervous about getting caught out, if the euro is really turning.

A profit warning from Goldman Sachs and a concerted effort among European central bankers to support the currency also boosted the euro.

It closed at $0.9278 from $0.9089 before recovering further later in the session. The euro also gained significant ground against sterling. The market is now clearly focused on the likely lack of further rate rises in the UK and the precarious nature of UK manufacturing. The euro closed at 62.54p against sterling from 61.72p. As a result the pound closed at 79.40p from 78.36p on Thursday.

In a boost for the currency, both Bundesbank president Mr Ernest Welteke and European Central Bank chief economist Mr Otmar Issing repeated that foreign exchange intervention could not be ruled out. In an environment where traders are buying the currency of their own accord such intervention is far more likely to succeed than when everyone is selling. As a result, many dealers took it quite seriously and started buying the euro.

Mr Welteke was quoted as saying intervention on the foreign exchanges to buy euros could not be ruled out and that the single currency's weakness "bothers us each day".

His comments surprised dealers, coming less than two weeks since he had said he was opposed to intervention without US co-operation, something he believed was unlikely before US presidential elections in November.

Intervention was not necessarily expected soon, but putting it back on the agenda had added impact, given that dealers have already begun to toy with the idea that the euro's fall to record lows below $0.8850 earlier this month marked its nadir.

There is also a widespread expectation that the next ECB meeting on June 8th will produce another rate rise to 4 per cent or possibly even to 4.25 per cent, according to Mr O'Sullivan.

ECB chief economist Mr Otmar Issing said yesterday the weak euro exchange rate was a blemish on the bank's otherwise strong record as it was undermining public confidence in the currency.

However, according to Mr Jim Power, chief economist at Bank of Ireland, it is still too early to say that the currency has finally turned the corner. "The outlook is very positive and there is optimism but very good US or very bad European news could change sentiment quickly," he said. And according to Mr O'Sullivan, a raft of European figures on economic growth, French unemployment and wholesale inflation will all be watched very closely next week.

He added that the currency might come off slightly early next week.