U.S. dollar rally may stall at the start of 2009

[Dover]

NEW YORK (Reuters) - The reality of low interest rates and deep economic recession should finally start to catch up with the U.S. dollar in 2009, after risk aversion and de-leveraging helped push the currency to multi-year highs.

The advance -- which has pushed the dollar up almost 20 percent against a basket of six currencies .DXY since July -- is "artificial" and may subside once extreme risk aversion eases and global markets stabilize, analysts said.

"Foundations for the dollar's recent rally have not been solid. The result of repatriation, deleveraging, quantitative easing and a major scarcity of dollars," said Bob Sinche, head of global FX and rate strategy at The Bank of America in New York. "But now we are bound for a correction."

Sinche said euro/dollar may be trading at 1.38 by the end of December and that the dollar may rapidly dip to 1.44 to the euro by the first quarter of 2009 before the pair resumes a "more gradual sell-off."

The European currency was last trading in New York at $1.2804 compared with a record high of $1.6038 touched on July 15. Demand for the greenback rose as the financial crisis deepened and even as the Federal Reserve cut interest rates while the economy slowed...cont'd

http://www.reuters.com/article/reutersEdge/idUSTRE4B36WI20081204

[SlowDownFast]

1. Dollar dump = Treasury bubble burst.

Massive flight into commodities.

Watch.