(Bloomberg) -- The euro gained as Deutsche Bank AG shares rebounded on speculation it will reach a lower settlement with the U.S. Department of Justice in connection with an investigation into residential mortgage-backed securities.
The shared currency erased losses after a media report that the lender is nearing a $5.4 billion settlement with the U.S. Department of Justice, less than half the amount initially requested. Demand was also bolstered as a report showed inflation in September in the euro area accelerated to the fastest since late 2014 .
"Euro-dollar is moving in line with the rally in Deutsche Bank shares," said Brad Bechtel, a currency strategist at Jefferies Group LLC in New York. "If rumors of a much-lower-than-expected fine are substantiated, this will be positive for European banks of course, but also the EUR/USD as well."
The euro's rebound followed declines linked to Deutsche Bank's stock and debt, which have been under pressure after the U.S. this month requested $14 billion to settle an investigation. The currency has been little changed since Sept. 8 when the European Central Bank refrained from expanding its quantitative-easing program and left its key interest rates unchanged.
The euro gained 0.1 percent to $1.1235 as of 5 p.m. in New York, after falling as much as 0.6 percent. The currency rose 0.7 percent this month, the most since March, and added 1.2 percent for the quarter.
Deutsche Bank shares rose 6.4 percent after declining as much as 9 percent.
The shares reached a record low after Bloomberg News reported late Thursday that some hedge funds moved to reduce their financial exposure to the bank. Analysts came to the bank's defense, with Stuart Graham at Autonomous Research saying that Deutsche Bank has enough funds to weather more than two months of severe stress, including trading clients pulling back.
“The market just whipsawed on the Deutsche Bank rumor,” said Mazen Issa, a senior foreign-exchange strategist at Toronto-Dominion Bank in New York. “We don't think there will be a significant move in the next few months, but we have a bearish stance on the common currency right now, given the political risks in Europe.”
To contact the reporters on this story: Andrea Wong in New York at awong268@bloomberg.net, Yun Li in New York at yli934@bloomberg.net. To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Paul Cox, Mark Tannenbaum
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