The most accurate dollar forecasters predict the world's reserve currency will continue sliding, even when the Federal Reserve begins to raise interest rates, which policy makers say is an "extended period" away.

Standard Chartered, Aletti Gestielle, HSBC Holdings and Scotia Capital say the US dollar will depreciate as much as 7.1 per cent versus the euro.

About US$12 trillion ($17 trillion) of fiscal and monetary stimulus, the world's lowest borrowing costs and a record US$4 trillion of government bond sales between 2009 and 2010 will weigh on the currency, they said. So will the nation's 10.2 per cent unemployment, and signs that the economic recovery may falter, they said.

"History tells us the dollar shouldn't start rising on a sustained basis until 12 months after the Fed starts to lift rates," said Callum Henderson, the Singapore-based global head of foreign-exchange strategy for Standard Chartered.

The best forecaster of the US dollar against the euro in the six quarters ended June 30 in Bloomberg's ranking of 46 firms last month predicts the greenback will weaken 5.9 per cent to US$1.58 against the euro in 2010, from last week's US$1.49 close.

"It'll take time to drain the oversupply of dollars from the market," Henderson said. "The dollar will remain weak until the Fed's rates rise above the competitors."

The US will be one of five economies represented in the Group of 10 to wait until after mid-2010 to raise benchmark rates, according to median predictions in Bloomberg surveys of as many as 60 economists.

The Fed, the European Central Bank, the Bank of England and the Swiss National Bank will increase borrowing costs in the third quarter. The Bank of Japan will remain at 0.10 per cent, at least through March 2011, the surveys show.

By the end of 2010, only Japan will have lower borrowing costs, and those will be higher when adjusted for inflation, the forecasts show. The Fed's target for overnight loans between banks will be 1 per cent, compared with the ECB's 1.5 per cent benchmark.

US borrowing costs will make dollar-based assets less attractive, said Camilla Sutton, the foreign-exchange strategy director at Scotia Capital in Toronto. The Bank of Nova Scotia unit, the most accurate forecaster of the dollar versus the Swiss franc in Bloomberg's rankings, predicts 2010 will end with the greenback weaker at US$1.60 per euro.

"The dollar will lose the near-term race for interest rate increases, and then lose the long-term race," Sutton said.

Once the Fed raises its target, the US dollar's performance likely will mimic the pattern that followed the central bank's past three rounds of increases, Sutton and Henderson said.