Dollar Defies Greenspan Fix

Conversely, importers such as Wal-Mart (WMT Quote) and companies dependent on lower interest rates such as Citigroup (C Quote) and Pulte Homes (PHM Quote), can get hurt.

Interpreting Greenspan

Greenspan certainly doesn't expect the sky to fall, as he said in his Nov. 19 speech on the dollar.

"Market forces should over time restore, without crises, a sustainable U.S. balance of payments," the maestro said after conceding that a further decline in the dollar was all but inevitable.

Don't expect the Fed to start raising rates like mad to save the dollar now.

"The interest rate that the Fed issues is principally oriented towards domestic inflation and domestic growth," noted Komal Sri-Kumar, chief global strategist at TCW. "I don't think the dollar has ever been the principal target of the Fed's policies."

Further complicating the task for dollar saviors will be actions taken in Europe and Asia, and beyond the control of Greenspan.

Nearly all analysts agree that the Chinese, by keeping the value of their currency at a nearly fixed ratio to the dollar, are exacerbating trade imbalances. Some analysts had expected word out of China over the weekend indicating a near-term change in currency policy. But despite frequent pleas from the Bush administration for a revaluation, no one gave any such signal at the country's Central Economic Work Conference.

"It was instead made quite clear, once again, that the Chinese government will proceed at its own pace in this matter," wrote currency analyst Simon Derrick at Bank of New York.

Meanwhile, short-term rates may be about to head higher in Europe, despite sluggish growth in the eurozone.

A tightening by the European Central Bank would dampen the dollar-boosting impact of any rate increases by the Fed because U.S. rates wouldn't be any higher on a relative basis; and, in theory, they could even be lower if the Europeans move more aggressively. The ECB holds its monthly meeting on Thursday and could then give a signal about which way it is leaning.

Still, the dollar remains locked in a downward cycle. Even if the dollar stages a rally on news of the ECB meeting or Friday's U.S. employment data, expect the declining trend to resume sooner rather than later.