The European Central Bank should intervene to bring the euro below $1.20 by buying dollars, the head of Germany's Ifo institute was quoted as saying on Saturday.
Hans-Werner Sinn told Switzerland's Tages-Anzeiger daily in an interview published that it was well within the central bank's abilities to aim for a 10-cent reduction in the exchange rate by buying around $30 billion on the forex market.
"It should try to get the euro-dollar exchange rate under $1.20. The best thing would be for us to return to a rate towards $1.10," he said.
Currency intervention is an alternative for the ECB to cutting interest rates, if it wants to weaken the euro.
"If the ECB wants to weaken the euro, currency intervention is certainly the more likely option," said a euro zone strategist, who declined to be named.
Sinn said there was a 50 percent chance his leading economic institute could revise down its 1.8 percent German growth forecast for 2004 because of a strong euro.
"I estimate that the chances of a revision either up or down are the same. Things could be a lot better. Germany could get more of a boost from a global recovery than we expected. But of course the euro exchange rate is a significant risk," he said.
He said 90 percent of firms surveyed by the Munich-based Ifo institute put the euro's pain barrier at $1.30.
The euro touched a high of $1.29 against the dollar last month, prompting calls from politicians and business leaders for the ECB to intervene with a rate cut.
A strong euro erodes the competitiveness of Germany's key export sector by making its goods more expensive outside the 12-nation currency zone.
The German government's official forecast is for growth of between 1.5 and two percent in 2004.