The euro will continue to strengthen against the dollar and could reach $1.40 by the end of 2005, former IMF chief economist Kenneth Rogoff said on Saturday, urging the US Federal Reserve to take action.
"I think the euro could continue to appreciate, going up to $1.35 or $1.40 by the end of the next year," Rogoff said at an Aspen International Dialogue conference in Venice.
The euro has climbed steadily against the dollar and prompting German and French leaders to call on the European Central Bank to cut interest rates to prevent the impact on exporters stifling euro zone economies.
But Rogoff, now an economics professor at Harvard, said the imbalance should be resolved by the US Federal Reserve raising rates rather than the ECB easing rates.
"We should talk more about the Federal Reserve raising rates than a lowering at the ECB," he said, adding that excess liquidity in the global market was already a threat.
"There are risks of bubbles, especially in emerging markets. I see one or two defaults in emerging markets in the next few years," he said.
The ECB has shown little interest in cutting its key rate from 2.0 percent, double the equivalent US rate.
Still, Rogoff recognised it would be difficult to raise US rates ahead of elections.
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