Speculative attack is massive selling of domestic currency by foreign and domestic investors to acquire foreign currencies. Often this type of behavior by players in the foreign exchange market is aimed to make gain from exchange rate movements. Usually, speculative attack is associated with fixed exchange rate systems where the central banks intervene in the foreign exchange market by supplying foreign currencies.
The actions of speculators may be counteracted by the central bank, but in that effort the central bank may be losing a sizable portion of its foreign exchange reserves. Many times a currency crisis leading to steep depreciation is the result of speculative attacks.
