In a research report issued on Thursday, the American financial institution Merrill Lynch sees the US dollar moderately strong in 2009, given that the US current account gap shrinks as the economic downturn continues in US.

The ML experts forecast a US current account deficit for 2009at around 2.2 percent of GDP. "As the current account shrinks fast and US dollar demand arises in a risk averse world, we are moderately positive on the dollar," the ML global currency strategy group said in the report.

The report also stressed that the process of European banking sector de-leveraging is likely to generate significant US dollar demand over the months ahead, which will support the US dollar against many other currencies.

However, once the policies embraced by US government take effect and the economic outlook turns better, the US dollar will become vulnerable. "This is probably a 2010 story," the experts said.

Merrill Lynch forecasts the US dollar to reach 1.26 against the Euro by the end of 2009.

(Xinhua News Agency February 19, 2009)