A stronger euro and higher interest rates are likely in the months ahead, according to a new economic analysis from Ulster Bank.

The new outlook identifies a number of risks to the US economy, including the possibility of a downturn in consumer confidence, a deterioration in the US trade deficit and a China-linked hit to the US bond market.

Niall Dunne, who completed the research, believes that these "bears" will serve to upset the US economy and thus send the dollar sliding.

This would lead to the euro pushing above $1.30 against the dollar as 2006 progresses, Ulster Bank says.

For the euro-zone, Mr Dunne is forecasting a hike in interest rates early next year. A catalyst for change will come, according to the Ulster Bank analysis, from a combination of strong oil prices and higher taxes in Germany.

Both factors would naturally prompt price growth, and could thus push euro-zone inflation above the 2 per cent ceiling set by the ECB. This would in turn create pressure for higher interest rates.

Mr Dunne forecasts an initial rate hike within six months, with another to follow within the year.