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How Bad Is the Dollar's Fall?

Maniac: "Plus, when the dollar goes up in value, they have an awesome accumulation of treasurys they bought on the cheap."

And this is why I don't see a major, long term strengthening of the Dollar, as it would effectively increase the cost of redemption of debt. Most likely is an ad hoc fixing of the Dollar around $1000/gold, so funny-money debt can be repaid with funny-money.

How Bad Is the Dollar's Fall?

"The US Dollar has been in decline against the currencies of its key trading partners since January 2002."

Low interest rates and increasing deficits will do that to a currency.

"It takes considerably more Dollars to buy the basket of key currencies than it did in January 2002, but only slightly fewer than it took in January 1995."

Perhaps because those key currencies have also been devaluing by printing money like paper is free? I believe the comparison currencies have also fell to gold, oil, and other commodities and metals, just not as fast as ours has.

As for the relationship between Fed rates and Dollar strength, Euro was at $1.26 when we had 5.25% to burst the housing bubble, then went to $1.59 in anticipation of a full 100 bp cut last Tuesday after the BSC bailout and the new offer of cheap money to nearly everyone with questionable paper as collateral. The Dollar then strengthened because FOMC "only" delivered 75 bp, with two dissensions, and mentioned the word "inflation" in the press release, which I saw as jawboning rather than course correction.

Dollar will remain weak as long as FOMC and the US government continue to do more of what has already weakened it, rate cuts and deficit stimulus, the recent Deficit Stimulus Act being but the first installment of congress bidding for votes with our grandchildrens' money.