Bernanke Signals Dollar's Free Fall

Last week the IMF called for its demise. This week, Bernanke dutifully obliges. On his cue, the dollar begins its free fall . . .

The U.S. currency fell broadly on Thursday after Fed Chairman Ben Bernanke said in congressional testimony that "at some point in the future" a pause in rate increases may happen.

He also dealt another blow to the dollar by saying that global imbalances, a term often used to refer to the gaping U.S. trade deficit and surpluses in Asian countries such as China, may affect the currency.

The dollar has remained under pressure since last weekend when finance ministers of the Group of Seven major powers urged China and other Asian countries to let their currencies rise to help mend such imbalances.

"Since the G7 meeting, the market's focus has shifted to global imbalances from interest rate gaps," said Yoshinori Natori, currency trader at Shinkin Central Bank.

An end to the Fed's current cycle of hiking rates would remove a pillar of support for the dollar that had helped it rally in 2005, especially with both the euro zone and Japan expected to tighten policy this year.

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Traders said that bids from Japanese investors blocked the dollar's fall, with some of them buying U.S. Treasuries in the wake of Bernanke's comments.

In other words, we ain't seen nothing yet! The dollar's about to take a nose dive.

The Fed's Bernanke denied that the G7's statement was meant as a call for a weaker dollar. [Yeah, right!] Hiroshi Watanabe, Japan's vice finance minister for international affairs, also said earlier on Thursday that markets had misinterpreted the G7 communique.

But many market players and analysts were not convinced.

"It simply doesn't make sense to have the dollar rising if you want to mend global imbalances," said Seiya Nakajima, chief economist at Itochu Corp.

"G7 nations seem to be accepting a gradual fall in the dollar. But at the same time they want to keep its fall under control so as not to disrupt the global economy and markets."

And they have the nerve to call it a 'free' market. I'll leave the assorted expletives to your imagination.