The long term outlook for the USD continues to look dire. As the story broke that the G8 failed to reach a consensus on policy, but believed that the world economy is too weak to withdraw stimulus, and the developing economies rose to challenge the G8, the BoE surprised by halting the expansion of its quantitative easing program.
As I have written before, Britain is the canary in the coal mine for the US. The UK, unlike the US, has a very similar range of problems as the US but does not have the luxury of being the issuer of a major reserve currency.
As Macro Man commented yesterday (before the BoE announcement):
[I]t's worth noting that today sees an announcement from one of the few CBs in a tighter spot than the Fed....the Bank of England. Inflation has consistently exceeded expectations, and a prior raft of better-than-expected activity data has recently receded into sharp declines. Oh, and the fiscal situation is worse than that in the US, and adminsitered by a government that's now utterly bereft of credibility.
The BoE is embarking on a grand experiment with its QE policy. Watch this space for what may follow if the Fed follows this path.