The euro may well be on the way to parity with the dollar in the short term but is likely to recover before the end of the year.

However, investors should not be too bullish - while a recovery has certainly begun in the euro zone it is unlikely to be marked and inflation is most unlikely to rear its head.

As a result rate cuts are off the European Central Bank's agenda and it is likely to remain in neutral over the summer.

Expectations of a rate rise which would boost the value of the currency are probably far off the mark.

But it is possible parity will come in September if not before, particularly if the US Federal Reserve embarks on a series of short rate increases.

Another problem for the euro is German newspaper reports about proposals coming from the French Prime Minister's office to abolish the 3 per cent deficit/GDP limit included in the stability and growth pact. The reports say there are proposals to strengthen the informal €11 council to a "forum for the co-ordination of national economic policies" with a possible view to create a counterpart to the ECB.

In the current climate any comments about a weakening of the stability and growth pact will not help the euro and could hasten parity.

The summer should also bring the currency respite from euro-zone politics after: the resignation of the former German finance minister, Mr Oskar Lafontaine; the departure of the Commission; the conflict in Kosova and the musing of Commission president designate Mr Romano Prodi.

Euro-zone investors hope Europe's left-of-centre governments will switch to a reforming agenda.

If German chancellor Gerhard Schroder uses his power to impose his "new centre" on the SPD then this will be good for political stability.

By bringing a new dynamism to core economies it is possible it will be enough to put a floor under the euro.