Dollar's Long Rally Likely to Stall in 2009

The once moribund dollar has soared 20% against foreign currencies since July, one of the few bright spots in a grim financial landscape. The dollar traded against the euro at $1.28 this morning, down from a high of over $1.60 this summer. But the dollar's rally is expected to stall in 2009, as low interest rates and the pain of a recession catch up with the greenback.

Despite America's economic woes, risk-averse investors flocked to the dollar while dumping smaller, more volatile currencies. But foreign exchange analysts warn that the dollar's advance has been "artificial," and that the buck may face a rapid sell-off in the first quarter of 2009 before stabilizing. "Foundations for the dollar's recent rally have not been solid," said one strategist. "We are bound for a correction."
(More US dollar stories.)