July 28 (Bloomberg) -- The long vigil in expectation of a dollar rebound during the past few years at times resembled ``Waiting for Godot,'' Samuel Beckett's 1953 play about the futility, despair and frustrations of a couple of tramps who spend two days waiting for a man who never shows up.

The dollar should prove to be more reliable. It will be buoyed by improving U.S. trade, receding oil prices, a narrower interest-rate gap between the U.S. and Europe, and the detrimental global effects of a slowing American economy.

The dollar fell to a record $1.6038 to the euro on July 15. Such news makes for sexy headlines, but more significant is that, apart from the occasional surge up or down, the U.S. currency has traded mostly within a narrow range of $1.54 and $1.58 to the euro since March 31.

Such stability is evidence that the market is starting to take seriously Treasury and Federal Reserve assertions about wanting a stronger dollar and that the currency is bottoming out against the euro.

The dollar's resilience is also a sign that Europe's high- flying common currency may be tiring. The ECB is being squeezed by the same accelerating-inflation/slowing-growth vise that besets the Fed.

ECB council members are talking tough on inflation, and the bank on July 3 raised its key lending rate to a seven-year-high 4.25 percent. In an interview with four newspapers published on July 18, ECB President Jean-Claude Trichet said the bank would do what is needed to deliver price stability.

Euro Inflation

Up to now, such comments and the ECB's inflation-fighting credentials have been sufficient to buoy the euro. Nonetheless, inflation in the 15-nation euro area accelerated to 4 percent in June, the highest in more than 16 years.

Meanwhile, signs of slower growth abound. Euro-region industrial output fell the most in almost 16 years in May.

Betting on the dollar certainly takes guts. The U.S. financial-services industry is bleeding, with the prospect of further losses and writedowns. At 2 percent, the Fed's benchmark interest rate is lower than the European Central Bank's and below U.S. inflation.

U.S. consumer prices increased 5 percent in the 12 months to June, a 17-year high. Growth is slowing. Fed Chairman Ben Bernanke told lawmakers last week that growth and inflation risks are increasing, abandoning his June assessment that the threat of an economic decline had diminished.

This mix of poor economic news has persuaded many that the dollar has further to fall. The U.S. currency will weaken against the euro, yen, Swiss franc and Brazilian real in the next six months, according to the monthly Bloomberg Professional Global Confidence Index, which questioned 5,450 Bloomberg users worldwide on July 7-11.

90 Percent Gain

Still, the euro-region economy is suffering from stagflation. And while the region's exports have been unexpectedly strong, it's doubtful they can weather slowing global growth, especially in emerging markets, and a euro that has soared 90 percent against the dollar since October 2000 and is overvalued against the currencies of most trading partners.

Domestically, soaring energy prices, declining loan growth and tightening lending standards are eating into consumer spending. While the ECB's hard inflation line may be euro-bullish in the short run, ``it will ultimately undermine the currency as activity collapses,'' BCA Research Ltd. said in a recent report.

Oil Prices Ease

Then there's oil. From a record high $147.27 a barrel on July 11, oil futures have fallen 15 percent. Investors, central bankers and economists have waited months for oil prices to recede. It looks as if that moment has finally arrived.

High oil prices have meant a weakening greenback by encouraging the ECB to respond with tighter monetary policies, which boost the euro. Similarly, costly petroleum increases inflation in oil-exporting nations, prompting speculation that Arab states might abandon their dollar pegs and invest their foreign-exchange reserves in other currencies, which is another dollar negative.

But the flip side also holds true. Receding oil prices lend the dollar support by permitting the ECB to ease policy and focus more on growth, while giving the Fed more leeway to raise interest rates to counter U.S. inflationary pressures. And by reducing inflation in Middle Eastern countries, cheaper oil removes the urgency to ditch their dollar pegs.

``A long overdue correction in oil prices could soften the tone of ECB hawks,'' says David Abramson, chief currency strategist for BCA Research in Montreal. ``A sharp drop in oil prices would undermine the euro against the dollar.''

A stronger dollar would be good for global growth and U.S. financial markets. And who knows? Godot may even make an appearance.

(Michael R. Sesit is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Michael R. Sesit in Paris at at msesit@bloomberg.net

Last Updated: July 28, 2008 00:04 EDT