Currency traders again found their appetite for buying euros but volatility in the FX market with limited liquidity is making things pretty unplayable

The euro rises followed volatile session when the single currency climbed more than 2 per cent against the dollar which was one of its biggest daily rises in more than three years.

“The volatility in the FX market right now is making things pretty unplayable,” said Steven Barrow, head of G10 FX strategy at Standard Bank.

Jane Foley, senior currency strategist at Rabobank, said limited liquidity may explain the Bund yield rise. “While the move in Bunds was a factor behind the related rally in EUR/USD, the speed of the move suggests that positioning played a part,” she wrote in a note.

Some currency commentators attributed the decline to the closing of long dollar positions, although Commerzbank strategists pointed to dovish comments by Federal Reserve governor Lael Brainard, who played down the prospect of a second-quarter bound in the US economy.

At Citigroup, currency strategist Richard Cochinos admitted that Tuesday’s volatility “leaves us scratching our heads”, considering the consensus position among clients this year had been to sell the euro.

Economic signals from the US and the eurozone were being interpreted differently, said Commerzbank. “Despite all the difficulties in the eurozone, the euro is able to benefit from the smallest of positive developments while the dollar often suffers setbacks despite a generally much more positive environment,” the bank said in a note.