The euro has sunk as low as it is going to go, according to Citibank's head of global currency strategy.

Mr Robert Sinche, in Dublin yesterday, said the single currency was likely to remain below parity with the dollar over the next 12 months, despite a supportive environment, while interest rates were on their way up to 4.75 per cent within the same period.

He pointed to two factors likely to stifle the euro's recovery. He said that despite the decline in the currency most investors remained optimistic about its long-term future and many expected to be buying euros again. "You need people to be seriously short in the currency before you can have a big rally," he said.

There is also a problem with the uncertainty about official support for the euro. In the US the Treasury Department looks after the dollar and in Japan the Ministry of Finance has the same role. But in Europe, Ecofin has never really taken up that mantle and the market looks to the European Central Bank to take up that slack.

Nevertheless, according to Mr Sinche, European economies are in recovery mode and interest rates are on the way up. He predicts that US interest rates will rise as high as 6.75 per cent from 6 per cent currently. European rates, on the other hand, will rise by more than 1 percentage point to 4.75 per cent.

A main influence on this will be the stock markets. And, says Mr Sinche, the focus is almost completely on the Wiltshire 5,000 - the most broadly based stock market index in the US - which correlates most closely with household wealth. The Wiltshire was volatile this week but not to the same extent as the Nasdaq.

Sustained volatility would, Mr Sinche says, hold back further tightening by the Fed.

Corporate merger and acquisition activity will also be crucial for the euro's value over the coming year, says Mr Sinche.

The euro is likely to appreciate against sterling and a rise of 57 per cent to around 63p or 65p is likely.