The euro's gyrations this year have taken hedge funds by surprise, saddling some of the biggest names in the currency markets with losses.

FX Concepts, an $8 billion currency-focused hedge fund in New York, struggled with losses as Europe's shared currency unexpectedly surged last month. Other hedge funds in the U.S. and Europe, including Bridgewater Associates Inc. and Moore Capital Management, have also stumbled recently, several investors and bankers say.

For months, Wall Street banks have recommended that investors sell the euro while buying higher-yielding currencies, such as those of emerging-market economies. So far, these bets haven't panned out

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