The embattled euro, which appears to be almost completely friendless right now, is widely predicted to fall as low as 95 cents against the dollar. The pound, as a result, could end up at around 75p against sterling - adding an unwelcome inflationary stimulus to an already booming Irish economy.

The main basis for the euro's fall appears to be the continuing extraordinary performance of the US economy and the related demand for the dollar. The US Federal Reserve has, to many investors, almost done the impossible. It has presided over strong economic growth without letting inflation soar away.

Just a couple of weeks ago there were worries that rising US interest rates would undermine asset markets, leading to a sharp fall on Wall Street. But now those markets are taking the likely quarter-point interest rate rise next week in their stride and are expecting yet further rises in American stock prices.

Yesterday's US GDP figures confirmed the view of analysts that the economy was continuing to grow strongly. While inflation has picked up slightly, the rise is not yet rapid enough to worry the markets.

In this scenario there is little that Europe's policy-makers can do to support the battered euro. Over recent years it has been economic growth trends which have driven currencies. European growth is undoubtedly picking up, but it is still a long way from being firmly established. And concerns remain that many European countries have not embarked on a programme of economic change as wholeheartedly as many in the markets would like. Many point, for example, to the continuing wage demands of Germany's engineering unions as evidence of the old-style economic thinking still in place.

But even if European governments were genuinely to attempt to restructure their economies it would still be five or six years before any fundamental change would be seen. And six years is far longer than "long term", from a currency trader's point of view.

In the meantime, the only action that could halt the euro's decline, according to Mr Pat O'Sullivan, economist at AIB, is intervention by the European Central Bank. The theory is that intervention - in which the ECB would enter the market and buy euros to add to demand - would put a floor under the currency, particularly if co-ordinated with another monetary authority, for example, the Bank of Japan.

Traders and investors might become far more reluctant to sell euros, fearing further intervention could lose them money. But as seen during the 1992-93 currency crisis, such intervention does not always work and can even be counter-productive.

Nevertheless, it seems highly likely that the ECB is, at the very least, considering such a move. If the ECB follows Bundesbank practice, which is most likely, it is unlikely to intervene, unless the currency bounces a little from its lows.

Simply throwing money at a declining currency is almost like throwing it away - as the Irish Central Bank found to its cost in the days of the currency crisis. Thus the ECB, if it is to intervene at all, is likely to wait for a small bounce in the currency's value on the markets, and then attempt to push that higher.

The ECB is also likely to be concerned about so-called fair value of the currency. This is a very nebulous concept but is likely to be at least around $1.10, a fact that could encourage those favouring a stronger currency at the ECB to try to intervene.

Quite apart from the strength of the US economy, there are technical factors which have driven the euro lower. Many fund managers are "long" on the euro, which means they bought heavily into the story of the euro's recovery late last year.

On top of that, "momentum trading" - where trading programmes pick up the volatility and velocity of trading - is also pushing the currency lower faster than might otherwise be the case. This is one of the reasons that markets tend to "overshoot" in the short term, with currencies rising or falling more sharply than would be justified.

Many analysts expect the euro to end the year at levels way above parity. AIB's current prediction is for $1.12 although Mr O'Sullivan says that may be a little optimistic. ABN Amro chief economist Mr Dan McLaughlin believes that may be optimistic and the currency is more likely to end the year around $1.02.