The euro is likely to lose some of its strength over the short term, but if Ireland asks for bailout funding and establishes a clear mechanism of how it will work, some nerves in the markets will be settled, Richard Yetsenga, global head of emerging-markets currency strategy at HSBC told CNBC Monday.
On Monday,Irish officials denied againthat the country has requested aid from the European Union and the International Monetary Fund, but EU sources told various media that talks were ongoing.
"The euro is probably going to continue to weaken in the short term," Yetsenga said.
"The euro's having a pretty good run for the last few months. It wasn’t that many months ago that people were calling the death of the euro, and it promptly rallied 20 big figures or thereabout, so I think we're just giving some back," he added.
Just a few months ago, critics werepredicting the end of the single European currency, because of the Greek crisis, but such predictions have been muted since worries over the Irish situation emerged.
"If some issues are settled, and Ireland comes and asks for some money, and we see some processes established for how this bailout mechanism will work, then there's no question that we'll settle some nerves," Yetsenga said. "This is a pivotal week."
The issue that needs attention is fixed exchange rates, and the extent to which they allow economies to adjust to external shocks, he added.
But the chance of Europe coming together on this issue is low, especially since expectations about pan-European agreement have been low in the past, said Yetsenga, who predicted that it will take "something big" to bring all the players to the table.