The euro has rallied more than 2 cents as frantic end-of-year trading triggered computer generated buy orders.
The euro's closing figure of $1.0260 is a large rebound from its $1.0016 level on Friday afternoon. Against sterling it closed at 63.16p from 62.76p. As a result the pound rose to above 80p against sterling, closing at 80.22p from 79.44p on Friday.
According to Mr Aziz MacMahon, economist at Ulster Bank, good news from Germany triggered some buying and in turn that triggered heavy buying from so-called "stop loss" orders. There is relatively so little money in the system at the moment in the run up to the changeover to year 2000 that small amounts can trigger much larger changes than is normal.
It also emerged that Hong Kong, one of the world's largest holders of foreign exchange, has become a buyer of euros for its reserves despite the currency's slide in foreign exchange markets.
Mr Joseph Yam, head of the territory's monetary authority, said the euro's weighting in the reserves would rise to 15 per cent from 10 per cent because of worries about the US balance of payments deficit and stretched equity values on Wall Street.
The single currency was also boosted by German figures which showed that orders rose 3.2 per cent in October over September when they fell 4.2 per cent. The rise was well ahead of expectations of a 0.7 per cent increase or over three times what the market was expecting.
Mr MacMahon added that the failure of those who were negative on the euro to push it even lower last Friday when it closed above parity meant that a bounce was likely to happen.
News that pan-euro zone unemployment fell below 10 per cent also gave markets a psychological boost. Unemployment in the euro zone was 9.9 per cent at the end of October, the first time the indicator has been under 10 per cent since 1992. Coming on the back of strong German orders data, the strong euro zone jobs data helped drive the euro rally further.
German unemployment and GDP figures are out today with industrial production due out tomorrow. The SPD conference also begins today and the market will be keeping an eye on any political pressure coming on the ECB to maintain the currency above parity.
According to Dr Dan McLaughlin, chief economist at ABN Amro, the euro could fall below parity again and if it does there is little the European Central Bank will do. There is even a question mark over whether it can intervene in the markets if it wanted to, he said.
"It is not clear that the ECB can actually substantially support the currency off its own bat as its mandate is price stability and exchange rate policy is the remit of Council of Ministers."
He added that one of the other keys to the currency's future direction will be US share prices. If they continue to rise it will be supportive of the dollar and the euro could well reach parity again, he said.
--(Additional reporting Financial Times Service)
