Analyst: If the euro rises above 1.2, the European Central Bank will need to cut interest rates by more than 75 basis points before the end of the year.

"If the euro rises from 1.01 to 1.20 in six months, then indeed, this is a big problem," said Mathieu Savary, Chief European Strategist at BCA Research. Economists at Goldman Sachs note that the euro has increased by 5% against major trading partners' currencies since early March. They suggest that this could lead to a decrease in inflation of around 0.2 percentage points annually over the next two years, but if the euro continues to appreciate, this drag effect could double. Barings portfolio manager Brian Mangwiro believes that to hedge against this impact, the European Central Bank would need to lower key interest rates from the current 2.25% to below 1.5% by the end of the year if the euro were to appreciate above 1.20 against the US dollar.