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Banking regulator probing Barclays, Deutsche Bank's FX algorithm: Source

The New York banking regulator is investigating if Deutsche Bank and Barclays used algorithms on their trading platforms to manipulate foreign exchange rates, a source with direct knowledge of the matter told Reuters.

Benjamin Lawsky, the head of New York's Department of Financial Services (DFS), has ordered a monitor to be installed at Deutsche Bank and already has one in place at Barclays - a move that will allow him to collect greater evidence of alleged manipulation, said the source who did not want to be named.

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Deutsche Bank spokeswoman Renee Calabro declined to comment but cited an earlier statement on the probes.

Read MoreWatchdogs impose$3.4B fines in bank forex probe

"Deutsche Bank has received requests for information from regulatory authorities that are investigating trading in the foreign exchange market. The Bank is cooperating with those investigations," Calabro said, quoting the earlier statement.

Barclays spokesman Mark Lane declined to comment on the matter. A DFS spokesman also declined to comment.

Last month, regulators fined six major banks a total of $4.3 billion (£2.7 billion) for failing to stop traders from trying to manipulate the foreign exchange market, following a yearlong global investigation. Deutsche Bank and Barclays were not among the six banks.

Lawsky, who started his probe into possible manipulation of currency markets in February, chose not to coordinate a settlement with other regulators because he viewed those deals as too weak, a source told Reuters last month, an indication he's likely to go after the banks later and demand larger penalties.

Reuters reported last month that the civil settlements struck between six global banks and U.S. and UK authorities set the stage for negotiations over related ongoing probes that could bear much more severe consequences.