Will the dollar have a better year in 2007?

Forex outlook:
The euro traded steady against the dollar and the yen on Friday, the last trading day of the year, supported by expectations that the European Central Bank will carry on raising interest rates in 2007, which was boosted by the stronger-than-expected November money supply data.
The U.S. currency approached a two-month high against the yen on Thursday after stronger-than-expected reports on consumer confidence, existing home sales and manufacturing. The U.S. currency is up 1 percent versus the yen this year despite expectations that the Bank of Japan will raise interest rates up to 0.5 percent before the end of March.
The dollar has dropped 9.9 percent against the euro this year as speculation of interest-rate cuts by the Fed reduced the appeal of dollar-denominated assets. The U.S. central bank has held its benchmark rate at 5.25 percent since August, ending two years of increases. The dollar also weakened 14 percent versus the British pound with expectations in the market that the Bank of England may push rates higher in 2007. Europe's second-largest economy grew at the fastest annual pace in two years in the third quarter and has shown few signs of slowing even after the two interest-rate increases from the Bank of England. Rising retail sales, surging house prices and a recovery in manufacturing means the economy will exceed the government's growth forecast of between 2 and 2.5 percent this year, Chancellor of the Exchequer Gordon Brown said.

According to Bank of New York, the dollar will rise against the euro and yen next week as signs of growth may attract investors to buy U.S. assets, boosting demand for the currency. “The market is well positioned for some initial dollar buying,” said Michael Woolfolk, senior currency strategist at the Bank of New York. “The data pointed to a solid fundamental backdrop. It won't push the Fed to cut rates any time soon. Global fund managers will buy U.S. equities and bonds at the beginning of the year”.
Into the New Year, investors are expecting the producer price index, retail sales and unemployment data to be released in the euro zone on Friday, as well as the U.S. nonfarm payroll data. With Japanese markets closed for two days next week, there is no major economic indicators are due in the first week of 2007.