The euro was once again thwarted in its attempt to breach dollar parity yesterday, despite reaching $0.999 in early-morning trading.
Analysts had expected news of irregular accounting at Xerox to push the euro through the one-for- one barrier before the weekend, but were disappointed when a Japanese monetary intervention to take pressure off the yen provided a counter-stimulus later in the day. The European currency was hovering a shade below €0.99 at the end of a jittery afternoon's trading.
Despite the Japanese intervention, which saw the Federal Reserve buy dollars and the ECB pick up euros, expectations remain strong that the European currency will break the psychological parity barrier within the coming week.
Mr Aziz McMahon, foreign exchange analyst with ABN Amro in London, said that once parity was broken, an event that he sees as inevitable, the euro will easily make further gains, moving up to $1.05 relatively quickly.
"It'll probably stay above parity for the rest of the year if it breaks," he said, adding that traders who had thus far stayed out of the market would then be forced back in, thus undermining the dollar further.
Mr McMahon also pointed to a belief that further news of improper accounting in the US looked certain to emerge in coming months. "There's a view taking hold that there's a lot more of this to come," he said.
Mr Austin Hughes, chief economist at IIB Bank, attributed much of the current market movement to a general market unwillingness to take a positive view on US financial news.
"Whatever data come through, the markets are seeing the US in an unfriendly light," he said.
In normal circumstances, said Mr Hughes, emerging concerns about the French economy or the growing significance of the far right in European politics would be sufficient to knock the euro off a positive track, but this was not the case at the moment.
He believes that forecasts envisaging the euro moving above $1.20 within one or two years could become commonplace.
"In an already dollar-negative environment, such predictions would add to pressure on the US currency," he added.
Meanwhile, Mr George Soros, the international financier who bet against the pound when it exited Europe's exchange rate mechanism in 1992, has said that he would not be surprised to see the dollar shed one-third of its value within the year.
"It seems that the trend in the dollar has reversed," he told yesterday's edition of the Wall Street Journal Europe, acknowledging however that this could have "some very negative implications" for the global economy and, in particular, the confidence of US consumers. Mr Soros has also spoken out on the UK debate over entry to EMU, arguing that the UK will lose out on foreign capital investment if it stays out of the euro.
