What does it mean for the dollar?

Many currency strategists see a potential turning point for the dollar midyear, which should coincide with the expected impact of U.S. monetary and fiscal policy stimulus. That should also match up with expected ECB rate cuts, which would begin to narrow the interest-rate differential between the U.S. and the Eurozone.

“The ECB will start cutting rates about the time the Fed is done,” Wachovia’s Vitner says.

Most analysts expect additional monetary easing at the March and April FOMC meetings, which could tug the federal funds rate down as low as 2.5 percent. As long as the U.S. avoids recession, most Fed watchers expect that to be the bottom of the current easing cycle.

John Shin, G-10 currency strategist at Lehman Brothers, says additional euro strengthening is possible in the first half. But in the second half, he says the ECB will cut rates and we’ll start to see the U.S. dollar post a moderate increase into year-end.

Lehman targets year-end rates at $1.40 for euro/dollar. Lehman forecasts 2008 GDP growth at 1.5 percent for the Eurozone, down from an estimated 2.7-percent GDP in 2007.