Will the euro leave the dollar behind?

New popularity for the euro

LONDON, England (CNN) -- As the euro hits parity with the U.S. dollar, some analysts predict it will forge ahead.

"It may be at 1.05 (U.S. cents) by the end of the year and then 1.10 a year from now," Steve Barrow, currency economist at the Bear Stearns, told CNN.

The euro rose to $1.0018 against the U.S. dollar in London on Monday, the first time it had reached parity since February 2000. (Full story)

Now some European politicians would like the euro to challenge the dollar as a currency held by central banks around the globe.

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The 12-nation eurozone's common currency, which was launched on January 1, 1999 and began trading at 1.17 cents, had been undermined by a lack of confidence in the European Central Bank and prospects for growth. (Full story)

But now a lack of confidence in prospects for U.S. economic growth and the scandal over accounting practices have taken their toll on the greenback.

Global investors, which had ploughed $116 billion into U.S. stocks last year, are now withdrawing money rapidly.

"The dollar will grind lower in coming months," Barrow said. "In April, 11 billion euros were put into (European) stocks and bonds and data in subsequent months will show more is coming."

Billionaire financier George Soros told the Wall Street Journal last month that the dollar could shed a third of its value in the coming months.

Soros, who famously bet against the pound when it crashed out of Europe's exchange rate mechanism in 1992, said the dollar's fall had some negative implications for the world economy and endangered U.S. consumer confidence.

It is one of a basket of currencies -- including the Swiss franc, sterling and yen -- that have weakened over recent months for different reasons.

In Britain, the pound has come under pressure amid speculation that Prime Minister Tony Blair may call a referendum to join the single currency next year and has lost ground to the euro.

But Sharda Dean, euroland economist at Merrill Lynch, predicts the euro will fall back after hitting parity.

"We reckon by the end of the year we'll be back to the 97 level," Dean told CNN. "We still believe growth in the U.S. should outpace the eurozone, which has long-term structural problems."

Barrow also points to sluggish growth in the eurozone and political problems with governments struggling to meet conditions for euro entry.