Some economists say capital flows into Japan pose a significant threat to the euro in the short term. But thereafter the median forecast showed a long slog back to $1.0565 in three months, $1.10 in six months and $1.1490 a year from now. Much depends on two events which have long been forecast but are taking a while to happen: a slowdown of the US economy and a euro zone recovery strong enough to win over the doubters on the foreign exchange market.

"Sentiment will still be in favour of the US dollar because of the stronger growth in the USA," said Gerhard Grebe of Bank Julius Baer in Frankfurt. "The USA will continue to surprise on the upside and everyone's waiting for a strong rebound in the euro zone. If it doesn'T materialise they will be disappointed."

Grebe saw the euro at parity a month from now before climbing gradually to $1.10 in a year. An economic rebound would come eventually, although for 2000 he still saw Europe lagging. He forecast gross domestic product growth at 3.6 percent in the United States and 2.8 per cent in the euro zone. The Reuters Eurozone Purchasing Managers' Index, which plots the area's manufacturing economy, has shown growth since April but the November figure, while a strong 57.0, was below forecast, and unchanged from October.

Economists failed to predict the euro's dive this month. In the last Reuters poll taken at the start of November they forecast it would be $1.07 at the end of last month. In fact it closed at just $1.0089 on Tuesday. Foreign Exchange Analytics in Connecticut came closest with $1.0250.

"It would seem as if many analysts have to eat humble pie as the year draws to a close," said Teis Knuthsen at SEB Merchant Bank in Copenhagen, who saw the euro breaking through parity to 98 cents in a month's time. "Euroland has done mostly as expected in terms of growth and the ECB (interest rake hike last month) but the US has stubbornly failed to slow and most of us have overlooked the negative effect coming from net capital flows," he said. Japanese selling of euro investments and repatriation of the funds was perhaps the biggest risk to the euro in the short-term, he added. But the majority of economists insist the euro will rebound.