Although confidence that market forces will be the only factors determining currency rates is decreasing, there's little indication the world's major central banks are about to initiate a coordinated action to support the dollar.

The dollar has fallen more than 20% versus the euro and more than 10% versus the British pound since 2006. In the months ahead, monetary officials may face increased pressure to intervene as companies in Europe complain about the higher prices they must charge for their exports to the U.S. to retain purchasing power amid a falling dollar.

"The risks of coordinated intervention are going to increase in the second quarter for sure as the dollar weakens further,'' Mitul Kotecha, head of foreign-exchange research in London at Calyon, told Bloomberg News Monday. The firm is the securities unit of Credit Agricole SA, France's second-biggest bank.

In midday Monday trading, the dollar was mostly higher against the world's other major currencies after U.S. stock markets rose. The dollar gained about one-half cent to $1.5356 versus the euro, about 1 yen to 100.55 versus Japan's yen, and about 1.5 cents to $1.0288 versus the Swiss franc. The dollar was virtually unchanged at $1.9822 versus the British pound.

Liquidity goal seen paramount

Independent currency trader Andrew Resnick disagreed with Kotecha, arguing that efforts by the U.S. Federal Reserve, European Central Bank, Bank of England, Swiss National Bank and Bank of Japan to support the dollar would take dollars off the market -- something that would conflict with the Fed's ongoing policy to increase the supply of dollars, or increase liquidity, due to the credit crunch. "From the Fed's liquidity goal standpoint, buying dollars would be self-defeating, so I don't think it will occur," Resnick said. Resnick added that he presently has no open currency trading positions.

Further, Resnick said research he's reviewed is inconclusive regarding the long-term effectiveness of central bank efforts to change currency rates. In his interpretation, over time "exchange rates will revert to their equilibrium," or the exchange rate determined by fundamentals.

For this reason, Resnick argued that the surest way to get the dollar to rise would be for the United States to eliminate its federal budget deficit and trade deficit. Stronger U.S. GDP growth and a higher U.S. savings rate would also support the dollar, he said.

Resnick said he expects the dollar to fall to 95 yen by the end of 2008. He also expects the dollar to fall to $1.65 versus the euro and $2.05 versus the British pound by the end of 2008.