Dollar Poised for a Comeback in 2008, Analysts Say

The dollar is poised to end a two-year slide against the euro in 2008 as government-backed funds in Asia and the Middle East purchase American assets, currency strategists say. The currency will gain 3.3% to $1.40 per euro, according to the median estimate of 42 strategists surveyed by Bloomberg News. The dollar is down 8.9% this year to $1.4485 per euro after weakening 10% in 2006.

Merrill Lynch & Co., Morgan Stanley, Citigroup Inc., and Bear Stearns Cos., based in New York, sold $20 billion in stakes to bolster capital eroded by credit-market losses. International purchases of American financial assets totaled $114 billion in October, the Treasury Department said December 17, the fastest pace in five months. "Sovereign wealth funds are getting cheap deals by buying some of these bombed-out assets," a chief strategist at Redtower Ltd., whose $1.23 per euro forecast is the most bullish, Gerry Celaya, said. "The U.S. economy is resilient and good at clearing out all the dead wood and bouncing back, and the dollar will follow."

The dollar depreciated this year as the worst American housing slump since 1991 triggered $80 billion in writedowns at finance companies and forced the Federal Reserve to cut interest rates.

The Japanese yen will rally for a second year against the dollar and end eight years of losses versus the euro as American and European economies slow, the strategists predicted in the survey.