If you're thinking the 11-month slump of the dollar index is about to make Uncle Sam cry uncle, think again.
Currency strategists like Marc Chandler from Brown Brothers Harriman say the diving dollar has plenty more downside to go, with nothing in its way besides an end to the frivolity of the Federal Reserve. In fact, he's betting the downtrend won't meaningfully reverse until the second quarter of 2012, saying "the one driving force is the Fed." And until the central bank stops easing -- in all forms -- the dollar will struggle.
The Fed is wrapping up a two-day meeting in Washington on Wednesday, and market watchers are expecting comments about the conclusion of the Treasury-supporting program known as QE2. However, Chandler says even when QE2 ends, the Fed will still be heavily involved in the bond market simply from the ongoing need to reinvest its massive portfolio.
All the while, Chandler and the rest of us will be able to watch a trans-Atlantic economic experiment unfold before our eyes, with the Europeans embarking on a path of austerity and the U.S. opting for the accommodative route. The stakes are almost immeasurable.
While it's still too early to declare a winner, Chandler says at this point, in the middle innings, it looks like Team Trichet is outfoxing Team Bernanke -- at least on the public relations front.
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- Uncle Sam cry uncle