The track record of the vast majority of exchange rate forecasters regarding the euro has been abysmal since the currency was introduced.

Until six months ago the poor forecasting record could be explained easily using the power of hindsight. An unexpectedly strong US economic performance stood out in marked contrast to a very sober European growth performance after the introduction of the currency, and the European Central Bank (ECB) has taken an inordinate time to adjust to the vagaries of the new monetary experiment.

The net result was that massive investment funds flowed into the US from Europe to exploit the more positive environment and swamped any flows in the opposite direction.

The euro fell heavily as a consequence. Coming into this year, there was a general expectation that there would be some narrowing of the interest rate and economic growth gaps between the US and Europe, and some reversal of the capital flows. This resulted in a strong consensus that 2001 would at last see the euro establish itself as a strong and stable currency.

Indeed, if one was given the gift of foresight six months ago and saw just how sharply the US economy would slow down and how aggressively the US Federal Reserve would cut interest rates, one would have become even more positive on the prospects for the European currency.

In the event, we have seen a dramatic narrowing of growth and interest rate differentials between the US and the euro zone, but the currency has performed in a dreadful manner and is currently languishing almost 10 per cent below its opening levels against the dollar in January.

On the dollar side of the equation, the cyclical story could not really be much worse. The US economy has slowed precipitously to the brink of recession, the Federal Reserve has been forced to cut interest rates in a very aggressive manner and US equity markets have had a pretty difficult year to date not withstanding some recent improvement.

However, Europe has also had its share of woes in recent times, with growth in Germany slowing quite sharply and even France is now starting to encounter difficulties. The respected German Ifo research institute indicated this week that it will revise down its German growth forecast and called for lower interest rates, while French business confidence fell to two-year lows.

Until recently Germany and France were going in different directions but now it appears that they are starting to converge. Unfortunately, this convergence appears to involve France rolling over and moving down towards Germany rather than the other way round.

While the US has been experiencing cyclical problems over the past year, Europe is now starting to experience its own cyclical problems and, of course, it has failed to sort out the structural issues that have rendered its business model so ineffective.

In addition, the ECB is performing in a pretty dreadful manner. The communications exercise around the recent interest rate cut was truly awful and has done nothing to enhance credibility in the institution or the currency over which it rules.

Despite rising inflation, which is a temporary phenomenon, it has to be hoped that the ECB will cut interest rates more aggressively over the coming months and rescue growth prospects. One would not be filled with confidence in that regard.

We also now have the added dimension of some serious policy recommendations coming from various members of the European firmament, which suggest a huge lack of clarity regarding what Europe is all about and what shape it should attain.

Lionel Jospin's suggestions about the harmonisation of corporation tax, Romano Prodi's comments about a European tax to finance the EU budget and numerous other comments about what sort of federation Europe should evolve into are all serving to create confusion. They also demonstrate clearly that there is little unity of purpose among the members of the union.

Enlargement will only serve to highlight this lack of unity even further over the coming years and accentuate the confusion. This sort of environment does not inspire confidence.

Investors are as perplexed as anybody else about what exactly is going on and are continuing to vote with their feet. Data released this week show that, in March, net foreign direct investment flows out of Europe exceeded €42 billion (£33.1 billion)and the hoped-for turn around in these flows is still failing to materialise.

European investors still clearly believe that the US is a better place to invest than Europe, despite the well-publicised problems of the US economy at the moment.

Notwithstanding the apparent failure of French company Alcatel to take over Lucent Technology, it appears that investment will continue to flow from Europe to the US, keeping the euro under pressure.

The spectre of intervention is rising again and really represents the only hope for a temporary stalling of the euro's downward momentum. However, intervention at this point would just highlight the sense of desperation and would not work in the longer term. With sentiment so poor at the moment, it is difficult to believe that the euro will fail to attain new lows over the coming weeks.

Finally, the performance of the euro in recent months should highlight for corporate treasurers what some studies have suggested; namely that currency hedging is generally a waste of time and money.

Jim Power is director of investment strategy at Friends First Asset Management