The US dollar will strengthen over the final months of 2006 Morgan Stanley analysts have predicted, recommending currency exchange dealers gamble on gains.

The dollar rose 0.7 per cent against the euro and 1.1 per cent against Canadian dollar last week, to its highest level since July last week.

The dollar rose on October 13th following a federal report showed that US retail sales excluding petrol increased last month, squashing speculation that rates will rise soon.

This will continue to $1.24 against the euro and Canadian $1.15 by the end of the year, reports Bloomberg. Against the dollar, the euro has risen 5.5 per cent and the Canadian dollar 2.2 per cent. 

"We see scope for fed easing expectations to be further unwound," said the Morgan Stanley report. "This should contribute to additional" dollar increases.”

Retail sales in the US rose 0.8 per cent in September, the highest figure since January, said the US government report last week.