The dollar fell to a yet another record-low against the euro Friday and plunged against the world's other major currencies, as investors shunned U.S. investments ahead of an almost-certain U.S. recession, with likely further interest rate reductions from the U.S. Federal Reserve.

Friday's trigger event for selling was The Bear Stearns Companies, Inc. (NYSE: BSC) stunning announcement that -- less than 10 days after senior management officials called liquidity-crunch rumors 'absolutely ridiculous' -- it had accepted a 28-day, emergency, secured loan from the U.S. Federal Reserve via JP Morgan Chase & Co. (NYSE: JPM).

The Fed said in a statement that it will ``continue to provide liquidity as necessary to promote the orderly functioning of the financial system,'' repeating reassurances Federal Reserve Chairman Ben Bernanke has made often since credit problems first surfaced in August 2007. The Fed did not state how large their loan is to Bear Stearns.
Currency markets jolted

News of additional problems in the U.S. financial system jolted the currency markets Friday, and the dollar fell against all major currencies, including falling about 1.3 cents to $1.5692 versus the euro before recovering later in the day to $1.5670. The dollar also fell 1.5 yen to 99.14 versus Japan's yen, 1.1 cents to $2.0217 versus the British pound, and 1.2 cents versus the Swiss franc.

Investors/readers should note that, in normal markets, a 1-cent move in currency pairing in one day is considered a large change. However, the U.S. dollar has fallen by 1 cent or more on so many occasions in the past six months, it's almost as if the norms of the currency markets are evolving as the United States comes to grips with its mortgage and related asset-backed securities defaults.

Earlier in the session, there was talk that the Federal Reserve, in conjunction with the European Central Bank and the Bank of Japan would intervene to support the dollar, by buying dollars. The dollar's more than 2-year decline has made both Japan's and Europe's exports more expensive, with some companies in Europe and in Asia said-to-be placing pressure on monetary officials to intervene.

'For now, the dollar must fall'

However, economist David H. Wang told BloggingStocks Friday he doubted the major central banks would intervene, arguing that such a move would be counterproductive to the Fed's present goals -- which are to maintain systemic liquidity and prevent distressed U.S. sectors from irreparably harming healthy U.S. sectors. That's because if the ECB or BOJ buys dollars, that takes dollars out of supply -- exactly the opposite of what the Fed is trying to accomplish with its recent Term Securities Lending Facility and other, related, liquidity-enhancing actions.

Wang said the Fed's increasing liquidity will have negative consequences for the United States and for dollar holders -- chiefly, higher inflation and a weak (and falling) dollar -- but that those negatives had to be accepted, at least short-term, in order to achieve the more important goal of financial system liquidity and the prevention of contagion. "U.S. inflation will rise and the dollar will fall, but for now, the dollar must fall," Wang said. Wang added that does not own trading positions in any currencies.

Wang said he expected the Fed to follow-through with the widely-anticipated, 50-basis-point cut in benchmark, short-term interest rates when it meets Tuesday. Wang said that likely rate reduction will put more downward pressure on the dollar, but the cut must occur, as part of the U.S.'s overall monetary and fiscal policy strategy to stimulate the U.S. economy, adding that is it that economic growth, when it returns, that will begin the dollar-strengthening process.