The euro touched a 17-month high against the dollar yesterday and briefly breached the psychologically important $0.95 mark.
The rally was short-lived, however, and the dollar made up ground later in trading as dealers took a breather from their relentless dollar selling to take profits on the euro, which dropped back to 94.57 cents.
The pro-euro movement received another boost as an influential report from the accountants PricewaterhouseCoopers suggested Britain's economy was rapidly converging with that of the 12-nation eurozone.
The European single currency has appreciated more than 6 per cent against the dollar so far this year and almost 5 per cent against sterling.
Economists said PwC's latest Convergence Index, published twice a year, would add fresh fuel to the debate about whether Britain should scrap sterling and join the euro.
PwC consultants said that while there remained some important structural differences between the UK economy and that of the eurozone, these should not be a barrier to joining.
The issue of convergence between the economies is seen as the most important of the five economic tests the Government has set to help ascertain whether the time is right for the UK to adopt the euro.
"The UK ship has rejoined the convoy," John Hawksworth, PwC's chief economist, said. "The latest trends in our index suggest that cyclical convergence of the UK and euroland economies is back on track after a brief period of apparent divergence in mid-2001."
Although there was divergence in the middle of last year, after three years of significant cyclical convergence, PwC said that the near zero growth experience in the UK and eurozone around the turn of the year has again brought them closer together,
"Broad cyclical convergence appears to have been restored," PwC said, adding that both economies are forecast to experience similar growth this year and next.
But George Eustice, head of anti-euro group, the "no" campaign, disagreed. "Short-term similarities in growth rates does not mean we have reached sustainable convergence."
Last month the leading think tank, the National Institute of Economic and Social Research, released a report judging that the Government's five tests had already been met.
The Government has promised to assess the economic case for Britain joining the euro by June next year. If all five tests have been met, the Prime Minister, Tony Blair, plans to put the issue to a referendum.
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