Some analysts are surprised by the evident unwillingness of Central Bankers to intervene on behalf of the Dollar, especially considering how common such "rescue plans" are becoming in other corners of the financial markets. Over the last couple months, all of the momentum that was previously behind intervention has gradually evaporated, such that at the recent G8 Summit, currencies were hardly even discussed. This is somewhat ironic considering the Dollar has resumed its downward trend, and even touched an all-time low against the Euro. Treasury Secretary Henry Paulson and Fed Chief Ben Bernanke aren't willing to completely write off intervention, however. Both have commented explicitly that it is still being mooted as an option. Nonetheless, the current consensus among analysts is that unless the Dollar completely collapses, it's not likely. The Associated Press reports:

"It would take a rare set of circumstances to get the U.S. right now to intervene," said David Gilmore, a managing partner in Foreign Exchange Analytics in Essex, Conn.

Read More: Don't count on ailing-dollar bailout

After a brief hiatus, the Australian Dollar has resumed its upward march against the Dollar; its next milestone will be a 25-year high against the Greenback. Of course, its continued strength is due to a combination of high domestic interest rates and high commodity prices. In fact, its performance seems to mirror the price of gold, which is no coincidence since gold may be Australia's most valuable export. In addition, gold has value as a monetary instrument, which means an appreciation in gold can give the Australian Dollar a double-boost by lifting it while simultaneously punishing the US Dollar. With regard its domestic monetary policy, Australian inflation recently passed the 4% mark, which means interest rates (already at 7.25%) are likely to stay high for a while. The countdown to parity continues, reports Bloomberg News:

The local dollar rose to its highest since 2000 against the New Zealand currency before an inflation report tomorrow that may support the case for the Reserve Bank of Australia keeping interest rates at a 12-year high.

Read More: Australian Dollar Trades Near 25-Year High as Commodities Rally

The economic picture in Canada is increasingly resembling that of the rest of the world: slowing growth and rising inflation. Likewise, the dilemma faced by the Bank of Canada mirrors that of the ECB and Fed. Even though Canadian inflation is only 2.2%, the Bank of Canada will probably err on the side of caution, by hiking rates rather than lowering them. Then again, analysts don't expect the Central Bank to take any action for another six to twelve months, based on the expectation that a cooling economy will naturally bring down inflation. That makes this whole debate seem moot, given how much could happen in such a long time frame. Canada.com reports:

Canadians will get a better idea of the central bank's thinking when it releases its monetary policy update and governor Mark Carney opens himself up to public questioning at a news conference later on its rate-setting decision...

Read More: Bank of Canada expected to steer a steady course on interest rates

Without exception, every time there is a period of sustained volatility in forex markets, a flood of new forex accounts are opened as new traders try to capitalize on the action.  Also, without fail, a concerned journalist inevitably takes it upon himself to warn these would-be profiteers that trading forex is risky, as if that were not abundantly obvious. This past week is a perfect example, as the Dollar touched a record low against the Euro on the basis of credit concerns. One columnist pointed out the significant upside potential of purchasing a CD denominated in foreign currency, but also implored investors to hedge their exposure and limit leverage. His advice: diversify by buying multiple currencies and/or equities for foreign companies and/or exchange traded funds based on hard-to-mimic strategies. Marketwatch reports:

[He] recommends...hedging your bets in you think the dollar will continue to weaken...[through] specialized mutual funds or exchange-traded funds that move inversely to the dollar. He holds the Pro Funds Falling U.S. Dollar Fund

Read More: Foreign currency trading is as risky as it gets

Who's familiar with the "song that never ends?" How about the credit crisis that never ends? Only a few months ago, the talking heads were trying to convince us that the worst of the credit crunch had already passed, and that analysts had overestimated the amount of the debt that would ultimately need to be written down. Congress was congratulating itself for its economic stimulus plan, and the Federal Reserve was patting itself on the back for engineering an increase in liquidity to the financial markets. Then, without warning, round two (or three, depending on how you count) was ignited as FANNIE MAE and FREDDIE MAC- which together anchor America's sprawling mortgage sector- announced financing problems. Commentators are already talking about the possibility of a government bailout. Buckle your seatbelts; it's going to be a bumpy ride. The International Business Times reports:

Continue to monitor this situation, paying particular attention to whether the bigger investment banks are still lending to customers. Any shutdown in the system would be extremely bearish for the Dollar across the board.

Read More: U.S. Financial Market Turmoil Continues to Beat Down Dollar

In the year-to-date, the Chinese Yuan has already appreciated 6.5% against the USD, the fastest pace since the currency was famously revalued three years ago. This upward pressure has been built largely on the continuing inflow of speculative "hot money," which was itself built on the expectation of further interest rate hikes, ostensibly needed to tame inflation. However, the Central Bank of China recently indicated a slight shift in its monetary policy, backing away from fighting inflation in favor of promoting economic growth. At least until after the Olympic Games conclude, China will henceforth ignore inflation, so as not to precipitate a slowdown that could jeopardize the Games. The Futures markets have been quick to react, and the consensus expectation for 1-year RMB appreciation has fallen from 10% to 5.4%. Bloomberg News reports:

Once the Olympics are out of the way, the vigil on inflation may have to resume. But unless China gets flooded by speculative flows, a one-shot revaluation will remain off the table.

Read More: China Won't Stamp Out Inflation, Revalue Yuan

Leading up to last week's G8 summit in Japan, it was rumored that "volatility" in forex markets would be a hot topic of discussion. Thus, it came as quite a shock to analysts and investors that the final declaration failed to name any specific currencies. Politicians, especially those representing EU member states, seemed equally surprised. Many of them had hoped to at least come to a rhetorical consensus that the Euro was overvalued relative to the Dollar and Chinese Yuan, and perhaps also the Pound. Given that currencies are evidently not as much of a concern outside the EU, it seems unlikely that any kind of coordinated forex intervention will take place in the near-term. Bloomberg News reports:

Exporters in Germany, Europe's biggest economy, are grappling with the euro's 15 percent appreciation against the dollar and an 18 percent gain against the pound in the past year. That's eroding competitiveness just as a U.S.-led global slowdown and record oil prices cool the world economy.

Read More: Merkel Regrets G-8 Failed to Address Currency Swings at Summit 

The narrative in forex markets had recently become so cut-and-dried, that investors may have forgotten that in the long-term, a variety of factors weigh on currencies. Last week, they were sternly reminded of this fact when tensions in the Middle East boiled over and sent the Dollar racing downwards. An Iranian missile launch sparked the initial uproar, but was quickly followed by unrelated violence in Turkey and Iraq. First, the price of oil skyrocketed, and then the Dollar fell, consistent with the inverse correlation which has been observed between the two commodities. It is unlikely that geopolitical tensions will supercede the macroeconomic situation; investors continue to monitor the credit crisis and interest rate differentials with vigilance. Nonetheless, the events in the Mid East served as a warning against tunnel visions when trading forex. Reuters reports:

Analysts said geopolitics could soon take a back seat again once macroeconomic newsflow picks up after a lack of first tier economic releases from U.S. or euro zone.

Read More: Dollar knocked by geopolitical tensions, oil

2008 has witnessed an explosion of volatility in emerging markets, affecting both debt and equity securities. Fluctuations have been especially dramatic in the forex markets, compounding the turmoil and skewing returns for foreign investors. The South African Rand and Brazilian Real, for example, have moved so violently that for both countries, a 10% gap distinguishes the returns earned by local and foreign investors. As a result, some institutional investors are re-examining their hedging strategies with regard to emerging markets. According to experts, currency hedging among equity investors is still rare because it is expensive and often complex. If hedging is undertaken at all, it is usually outsourced to a third-party. Some investors are quite dogmatic in their insistence that hedging is a complete waste of money, and argue instead that diversification (into different countries/currencies) represents a "natural" hedge. Since, the net change in exchange rates must ultimately be zero, a diversified, long-term approach to investing in emerging markets may automatically mitigate against currency risk. The Guardian reports:

"Currency movements tend to be noisy but over the long term they are just reflective of the economy and not the driver of economic performance."

Read More: FX swings wreak havoc with emerging equity returns

When one hears the phrase "housing crisis" uttered, the US immediately comes to mind. Not without reason, of course, since the US housing market is the largest in the world, and the scope of any US housing crisis is sure to dwarf a comparable crisis in any other country, in absolute terms. At the same time, let's not forget that prices in the UK, for example, began to decline earlier than in the US. In addition, as one columnist points out, the impact of the UK housing crisis may be relatively greater on the UK economy. While some of the statistics he quotes are dubious, housing and consumer debt (on a per capita basis)  may in fact be larger in the UK than in the US. As a result, the ongoing correction in housing prices would be expected to punish the UK more than the US. The story could be the same for the Pound, vis-a-vis the US Dollar. Money & Markets reports:

[One analyst] is...a long-term bear on the British pound and believes any rallies in the currency represent an opportunity to enter short at a better price. Selling the pound against the dollar with a 10-12 month time frame may present one of the best opportunities in the currency markets today.

Read More: UK Housing Bust Spells Trouble for Pound