The euro could hit $1.30 in the next 12 months as the European Central Bank (ECB) unwinds its stimulus, economic growth continues and political risks dissipate further, analysts told CNBC.
Markets forecast a gradual reduction in the ECB's quantitative program as inflation expectations in the region increase. ECB minutes released Thursday indicated once more that inflation, the most important economic indicator at the central bank, is picking up at a faster pace. This has fueled calls that the need for a significant monetary stimulus is over.
"As QE (quantitative easing) moves towards the end, markets focus more on rate hikes," Ricardo Garcia, chief euro zone economist at UBS, said when asked why the euro is set to appreciate over the coming months.
Traditionally, interest rates are interpreted as a factor that pushes currencies upwards as they tend to bring higher inflows to the region.
"We think that a gradual increase to 1.30 against the USD over 12 months is manageable for the euro zone economy, especially as the global economy is strong," Garcia added.