The European Central Bank Thursday kept its key, short-term interest rate -- the refinanced rate -- the same at 4%, the bank announced.

The ECB said its most recent data confirmed the existence of strong, short-term upward pressure on inflation. The bank went on to say that Europe is "experiencing a rather protracted period of temporarily high annual rates of inflation, resulting mainly from increases in energy and food prices." Hence, upside risks to the price stability remain, the ECB added, necessitating the stand-pat monetary stance.

Trichet is resolute

In general, economists and analysts had expected the stand-pat stance, given the acceleration of inflation in the euro-zone. ECB President Jean-Claude Trichet indicated as much in his post-ECB meeting news conference.

"We believe that the current monetary policy stance will contribute'' to bringing inflation under control, Trichet said, according to Bloomberg News. "The firm anchoring of medium- to longer-term inflation expectations is of the highest priority.''

Further, for at least the time being, the ECB does not appear to be concerned about the euro's steady, two-year rise versus the dollar. The euro rose to a record $1.5913 versus the dollar Thursday morning before paring gains to trade around $1.5830 Thursday at mid-day.

The euro is up about 33% versus the dollar since January 2006. A stronger euro makes European exports harder to sell because it raises the cost of exports as European producers increase the price of their goods to compensate for foreign currency depreciation. Some European companies, commercial aerospace giant Airbus among them, have complained that the euro's rise versus the dollar is beginning to affect their competitiveness.

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.

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.

The ever-incisive FT columnist Martin Wolf offers a stark and sober analysis of the United States' current financial and economic predicament, but it's an analysis well-worth reviewing, if one has the time.

A synopsis is provided here, but first, full warning: read the analysis when you're feeling well and in a good mood, not during other times.

The dollar plunged to a 13-year low versus Japan's yen Thursday, falling below 100 yen to 99.77 yen before recovering somewhat, after the markets received work that the a Carlyle Group fund had moved closer to collapse, Bloomberg News reported Thursday.

The dollar also fell against the world's other, major currencies. The dollar fell about one-half cent to $1.5587 versus the euro, about 1 cent to $2.0350 versus the British pound, and about one-half cent to $1.0088 versus the Swiss franc.

The dollar did recover slightly against the yen to 100.12 yen later in the Asia session, but the plunge to 99.77 represented the dollar's lowest level against the yen since October 1995. During that period of dollar depreciation, the Bank of Japan, Japan's central bank, intervened to support the dollar. Thus far, there's little indication the central bank will do the same today, independent currency trader Andrew Resnick told BloggingStocks Thursday.

The dollar fell for the sixth consecutive day against the yen and approached a record low against the euro, as traders increased their dollar-short positions on the belief the U.S. Federal Reserve will lower interest rates by 75 basis points to stimulate the sluggish U.S. economy, Bloomberg News reported Tuesday.

The dollar deteriorated about one-quarter cent to $1.5220 against the euro and fell about 0.31 yen to 103.15 yen in Monday morning trading. The dollar also fell about one-third cent to $1.9870 against the British pound, and about one-half cent to $1.0356 against the Swiss franc.

The dollar's fall continued despite growing concern in Europe that the euro is rising too much -- to levels that would hurt European exports. A rising euro increases the price of European exports to the U.S., if exporters pass along the added cost. On Tuesday European Central Bank President Jean-Claude Trichet told reporters a strong dollar is in the interests of the United States.

However, to-date, the ECB has resisted undertaking efforts to help stem the euro's rise, keeping its benchmark short-term interest rate at 4%. The ECB is expect to keep the rate the same when it meets Thursday to discuss monetary policy.

The U.S. dollar fell to a record low against the euro and to a yearly low against Japan's yen Monday on concerns the slumping U.S. economy will increase mortgage defaults and housing losses, Bloomberg News reported.

The dollar deteriorated about 1 cent to $1.5277 against the euro before paring back to $1.5177. The dollar also fell about 1 yen against Japan's currency, to 102.59 yen, before re-gaining some ground to 103.05 by midday trading. However, the dollar held firm against the British pound, losing just one-fifth of a cent to $1.9820.

Dollar doldrums

A series of macroeconomic and monetary factors has synthesized to create a bearish condition for the dollar. The U.S. economy is near, or already in, a recession, reducing demand for dollar-denominated assets. The U.S. Federal Reserve is likely to lower benchmark interest rates further in an attempt to reverse the economy's contraction path. In addition, high oil prices are driving up the already above-trend U.S. trade deficit, flooding the world with more dollars. Finally, the U.S. continues to import more than it exports, increasing U.S.'s demand for foreign currencies, further reducing the dollar's value.

To stock investors, among others, the currency markets sometimes appear a tad confusing.

Case in point: currency analysts and traders expect the U.S. dollar to rise versus major currencies this year, despite declining short-term interest rates in the United States. The statement appears to be a contradiction, given that the No. 1 factor in a currency's strength is its interest rate. High interest rates attract money and drive a currency higher versus currencies with lower interest rates, all other factors being equal.

However, interest rates, while the most important factor, are not the only factor affecting currency values. A nation's economic growth - - including prospects for growth - - also is a strong factor: stronger economies attract money, driving their respective currencies higher. Further, it's the latter that's leading analysts and traders to argue that the dollar should rise from its multi-year lows in 2008.

On Monday afternoon the dollar was mixed against the world's major currencies, falling about one-quarter cent to $1.4821 versus the euro and about 1 cent to $1.0732 versus the British pound. The dollar rose 0.25 yen to 106.72 against Japan's yen.

ECB President Jean-Claude Trichet said the European Central Bank needs to maintain its inflation-fighting stance, amid a very significant, ongoing market correction, Reuters reported Wednesday.

Trichet said, "In demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets," Reuters reported.

Many economists and analysts had hoped that the ECB would modify its inflation-focused stance in the face of mounting evidence of a U.S. economic slowdown and concerns that a prolong U.S. slowdown would slow global growth. Asian and European markets sold off more than 5%, and the U.S.'s Dow Jones Industrial Average plunged more than 400 points Tuesday, before the U.S. Federal Reserve cut key, short-term interest rates by 75 basis points in an emergency meeting.

Europe's major stock exchanges in London, Frankfurt and Paris continued their slide Wednesday, falling about 2% across the board by mid-day, The Financial Times reported.

The dollar plunged to a two-year low versus Japan's yen Tuesday, and retreated against other major currencies, on fears the U.S. economy has fallen into a recession, Bloomberg News reported.

The dollar fell 1.26 yen to 106.90 versus the yen. Meanwhile, the British pound rose about 1.5 cents to $1.9704 in mid-day Tuesday trading. The dollar was virtually unchanged versus the euro at $1.4862.

Economists and analysts say a recession in the United States would invariably drive the dollar lower, due to foreign investors' reduced demand for dollar-denominated U.S assets, many of which would underperform during a recession. The dollar also would be hurt by lower interest rates, a near-certainty in the months ahead, with the U.S. Federal Reserve widely expected to again cut benchmark, short-term interest rates to jump start the U.S. economy.

Stung by near-record oil prices, a large trade deficit, a federal budget deficit, sluggish economic growth, and inadequate domestic savings, the U.S. dollar has taken a beating in foreign exchange markets versus the world's other major currencies (euro, British pound, Swiss franc, yen).

Further, the dollar, which has fallen about 10% versus Japan's yen since January 2006, is now approaching levels that may draw the attention of more than just currency traders. The dollar traded Monday afternoon at about 108.96 yen, up 0.36 yen.

Traders eye BOJ

Independent currency trader Andrew Resnick told Bloggingstocks that the currency markets are beginning to sense that the strengthening yen versus the dollar may draw the attention of the Bank of Japan, Japan's central bank. A strengthening currency can make that nation's investments more-attractive to investors, but it also makes that nation's exports more expensive - - if exporters increase prices to compensate for the counter currency's reduced buying power.

The dollar fell broadly Wednesday against major traded currencies, plunging about 2 yen versus the Japanese currency to 109.84 yen. The reason for the dollar's weakness today was that rise in oil prices and soft U.S. manufacturing data led currency traders to conclude that the U.S. Federal Reserve will have to continue to lower short-term interest rates to jump-start a sluggish U.S economy.

The dollar also deteriorated 1.50 cents vs. the euro to $1.4734 in mid-day Wednesday trading.

Rough start to 2008

Currency trader Andrew Resnick, formerly of Next Capital, told BloggingStocks Wednesday the dollar's fall took some traders by surprise.

"It doesn't take much to upset the apple cart regarding the dollar, these days," Resnick said. "A lot of traders, myself included, were stopped-out this morning with dollar-long positions, which is not the way you want to begin the trading new year." Resnick added that he was stopped-out, or went flat after a losing trade Wednesday on dollar-long day trades of euro / U.S. dollar and U.S. dollar / Japanese yen.

If you're going to make a bold prediction regarding the currency market, perhaps it's best to announce it during the last week of the year, when most forex trading desks are half-staffed, if not closed for the year-end holiday period, when trading is light.

Could an ongoing shift in economic fundamentals drive a dollar rally in 2008? It's possible, currency analysts say, if the U.S. economy also follows-through with modest economic growth in 2008.

"I am confident that the dollar will have a significant rally next year, especially against the euro and the pound,'' Stephen Jen, the London-based head of currency research at Morgan Stanley told Bloomberg News on Monday. Jen expects the U.S. currency to strengthen to $1.35 against the euro by December 2008. "The deficits are shrinking fast.''

The dollar traded at $1.461 against the euro, at $2.0640 against the British pound, and at 110.46 yen against the Japanese yen Monday afternoon.

The ever-prescient Financial Times columnist Martin Wolf, an economist, raises, and to some degree answers, a question that no-doubt has been on the minds of U.S. investors, readers, as well as Europeans: Why does banking generate such turmoil?

Or, as Wolf put it another way: why is banking an accident waiting to happen, with the crisis in securitized lending the latest example?

The answer - - or fault, to paraphrase Shakespeare - - lies within ourselves, Wolf argues, due to the very things nations have established to protect depositors - - namely, depositors' insurance and government guarantees, which prompts banks to take high risks.