The euro has taken a beating from comments by the European Central Bank that currency strength is a concern, but it will only stay down if action follows the tough talk, analysts say.
The euro tumbled over 1 percent from a 2-1/2 year high on Thursday after ECB chief Mario Draghi said the strengthening euro was a "cause for serious concern." He suggested the central bank would ease monetary policy next month after holding its key rate steady at 0.25 percent in May.
In early Friday trade, the single currency hovered around $1.3835, holding near the lows hit the previous session.
"The reality is that unless the ECB actually follows through on its commitment to ease come June, the euro will stay where it is or potentially move higher," Jacob Kirkegaard, a senior research fellow at the Peterson Institute for International Economics in Washington, told CNBC.
"We still have quite a lot of portfolio flows into the euro area," he added. "Essentially investors are saying we have uncertainty in emerging markets, we still have low interest rates in the U.S., the rally in peripheral European countries has more room to go, and there's a current a current-account surplus, all of which pushes the euro up regardless of what the policy makers do."
The euro has been on a broad upward trend since mid-2012, gaining almost 15 percent against the greenback. It is up almost 1 percent so far this year.
In a research note published Friday, analysts at ANZ bank recommended buying into current euro weakness as capital inflows into the euro area "remain very strong."
"Whilst the euro has sold off, its downside is likely to prove limited," they said. "Expectations of a rate cut at next month's policy meeting on 5 June should provide support to euro area financial assets which will in turn support capital inflows."