North Korea's plan to limit wealth through a currency exchange has caused nothing but problems. Early on, it led to riots (and fatalities), and later the government eased the upper limit on wealth that could be held. The situation has become so difficult that the regime has even issued an apology. North Korean premier Kim Jong-il, according to a South Korean activist group, has come out and said the country is sorry.

"During a meeting of senior members of the Pyongyang municipal people's committee a few days ago, Kim Yong-il apologized for confusion and instability in the daily lives of people caused by wrongly fixed prices at state-run shops from the time of the currency reform to early this year," said the Good Friends newsletter.

Even though the regime has loosened some of the restrictions on currency exchange, inflation is still skyrocketing in North Korea. The government recently announced that it was moving to a new currency, and that the swap would involve a limit on how much could be traded. As a result, personal wealth was being consciously constrained, which led to the open questioning of the regime, defiance and rioting in some cases, and even a rare instance of flexibility among Kim Jong Il's subordinate decision makers.

Reports from inside the isolated communist state suggest that food shortages and price inflation have resulted from the new monetary policy, exacerbating a difficult situation with which the country already had to cope.

The British pound (CME: $BPY) hit $1.60 for the first time in more than half a year this morning, thanks to improved service company sentiment and an increase in mortgage approvals. A rise in consumer confidence in the United States increased risk appetite and lifted the pound, as well.

The news was good enough for a 0.5% gain for the pound against the dollar, a 0.6% increase relative to the euro and 1% against the yen (CME: /JY\M09).

Investors have watched the precipitous fall in the U.S. dollar over the past few years with trepidation. Investors in Israeli stocks trading in the U.S. have witnessed the once-lowly shekel dominate the dollar (and most other global currencies) over the past two years. It looks, at least from some uber-investors' perspectives, that the dollar may be set to reverse -- a boon for those companies with significant sales in the U.S.

Bloomberg has an article out this morning saying that bond guru, Bill Gross, the manager of the world's largest bond fund, the $129 billion Pimco Total Return Fund, has turned negative on the euro for the first time since its inception in 1999. According to the article, Gross's firm, Pimco, believes that according to purchasing power parity, a measure used to account for differences in exchange rates across countries, the euro is overvalued by 30%.

And Gross isn't the only one who is concerned that Europe may suffer a bigger slowdown than the U.S. in a world confronted with slowing growth and financial snafus. The same Bloomberg article says that according to a recent poll conducted by Bloomberg of global strategists, many think that the euro has seen its day and that the dollar is poised for a rally (hard to believe in the face of Fannie Mae and IndyMac).

Europe's Trichet-led Central Bank has signaled that it may be done raising rates. In fact, given the choice between fighting inflation and re-energizing a sputtering economy, some are betting that the ECB may need to actually lower rates. With a Fed-led plan to bailout the U.S. banking system and the bottoming out of the dollar, it looks like Gross and Co. are betting against the euro for years to come.

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

The dollar bulls have been vanquished again.

For the fourth time since the Economic Stimulus Act of 2008 was passed in February 2008, a nascent dollar rally has failed.

In Friday afternoon trading, the dollar was poised to record a 3-cent decline versus the euro for the week, to about $1.5776. The dollar has also fallen about 3 cents versus the British pound to $1.9788, and about 1.2 yen to 103.28 versus Japan's yen.

The kindling for a rally certainly existed earlier in the week: the prospect of 'the beginning of the end' of the worst of the U.S. housing market's troubles, and an interest rate decrease by both the Bank of England and the European Central Bank had emboldened dollar bulls.

Macroeconomic factors are beginning to hint about a change in the dollar's fortunes, pun intended, if a new survey is any indicator.

Still, that doesn't mean that the United States does not have work ahead to right its economic ship of state, so says one economist.

The Bloomberg Professional Global Confidence Index's dollar expectations component rose to 57.6 in May 2008 from 42.87 in April 2008, and 30.3 in March 2008. A reading above 50 indicates respondents expect the currency to appreciate in the next six months. The poll surveyed 3,447 Bloomberg terminal users.

In late Wednesday afternoon trading, the dollar rose slightly against the world's other major currencies, rising about a fifth-cent to $1.5446 against the euro, and a quarter-cent to $1.9435 against the British pound. The dollar also rose about one-half yen to 105.35 against Japan's yen. The dollar hit an all-time low versus the euro of $1.6018 on April 21, 2008. The euro has appreciated about 100% versus the dollar since 2000.

The dollar rallied to a six-week high Wednesday after U.S. productivity increased at a larger-than-expected rate and sentiment surfaced that Europe's economy may have slowed considerably.

The dollar rose about 2 cents versus the euro -- a large move in the currency market -- to $1.5370 on Wednesday afternoon. The dollar also gained against the world's other major currencies, rising about 2 cents to $1.9530 versus the British pound? about 0.5 cents to $1.0555 versus the Swiss franc and about one-half yen to 104.85 yen versus Japan's yen.

U.S. productivity gives dollar a lift

Earlier in the day, the U.S. Labor Department announced that U.S. worker productivity increased at a 2.2% annual pace in Q1 2008, well above the 1.7% Bloomberg News survey consensus estimate.

Independent currency trader Andrew Resnick told BloggingStocks Wednesday the Q1 2008 productivity data, combined with a sense that the European Central Bank is behind-the-curve concerning interest rate cuts to deal with slowing economic growth, put traders in dollar-buy mode.

The dollar rallied to a 5-week high Thursday on the belief the U.S. Federal Reserve will at least pause in its interest rate cutting cycle, as it evaluates the impact of both monetary and fiscal policy stimulus on the sluggish U.S. economy.

The dollar rose more than 2 cents versus the euro -- a large move in the currency market -- to $1.5440 on Thursday at mid-day. The dollar also gained against the world's other major currencies, rising about 2 cents to $1.9730 versus the British pound, about 1.7 cents to $1.0510 versus the Swiss franc, and about 1 yen to 104.50 yen versus Japan's yen.

Dollar rally 'may have legs'

Further, unlike previous fits-and-starts regarding earlier dollar moves higher, independent currency trader Andrew Resnick told BloggingStocks Thursday this dollar rally "may have legs" due to a potential change in fundamentals, in the dollar's favor.

A European Central Bank interest rate cut may be up ahead.

At least that was the verdict expressed by currency traders Thursday, who drove the dollar to its largest gain in almost four years after a report indicated that German business confidence dropped in April 2008.

The dollar rallied 2 cents - - an enormous move in the currency market - - to $1.5665 versus the euro Thursday. The dollar also rallied about 1 cent versus the British pound to $1.9705 and about 1 yen to 104.37 yen versus Japan's yen.

Those business executives, economists, and investors/traders who had hoped G-7 economic leaders meeting in Washington over the weekend would take efforts to stem the U.S. dollar's decline may be left feeling slightly disappointed.

Finance chiefs from the G-7 notched-up their rhetoric on the dollar, but provided little substantial evidence they'll take actions -- monetary or fiscal -- to stem the dollar's slide, Bloomberg News reported Sunday night.

"We continue to monitor exchange markets closely, and cooperate as appropriate,'' the G-7 said, Bloomberg News reported, with U.S. Treasury Secretary Henry Paulson adding that the G-7 statement on currencies "reflects market developments and changes in the markets." The G-7 then pledged to implement further monetary and fiscal policies "as appropriate,'' without providing specific details.

No substantive action on dollar

Economist Peter Dawson told BloggingStocks Monday the G-7 statement by the United States, the United Kingdom, Germany, Japan, France, Italy, and Canada amounted to a statement against currency rate volatility, not a substantive effort to bolster the dollar. He added that G-7 representatives, in his interpretation, appeared more concerned about maintaining financial market liquidity due to the ongoing credit slump, than about the dollar's value.

China let the yuan rise to a record level versus the dollar Friday, Bloomberg News reported, in a sign Beijing may be modifying its currency stance in order to regain control of inflation.

The yuan strengthened to 6.9907 yuan versus the dollar Friday, its strongest level since the Chinese Government moved from a fixed or "dollar pegged" currency rate to a system that limits the yuan's currency appreciation to about 5% per year.

China has kept the yuan artificially low -- or not set by free-market, foreign exchange forces -- in order to stimulate economic growth and protect its young economy. The low yuan keeps the cost of Chinese exports low -- a major factor in both China's record trade surplus with the United States and its surging manufacturing export revenue. Critics charge that the low yuan gives China an unfair advantage versus foreign manufacturers: many of these producers, among others, argue that the yuan would appreciate to 5 or even 4.5 yuan to the dollar if allowed to float freely.

The euro hit an all-time of $1.5915 versus the dollar Thursday, only to become subject to an increasingly rare event in currency markets these days - - a dollar rally.

That's right: you read correctly. The dollar rallied, getting off the deck, as it were, from its record-low versus the euro to gain more than 1 cent for the day to trade at $1.5741 late Thursday.

Trading is likely to be calm to inert heading into Friday, due to the G-7 meeting in Washington of the world's major central bankers and finance ministers.

What inspired the dollar's rally? Independent currency trader Andrew Resnick told BloggingStocks the currency markets interpreted Thursday's lower-than-expected 357,000 U.S. initial weekly unemployment claims as a strong point for the ailing U.S. economy. That fact, combined with the belief that the previous week's claims may have been inflated, due to the earlier Easter holiday, sent traders into buy-dollar mode.

Venezuela, which earlier this month at a summit of oil producing nations suggested that producers add political objectives to their agenda, Tuesday called for oil to be priced in a basket of currencies, and not the U.S. dollar, Reuters reported.

Venezuela's Energy Minister Rafael Ramirez blamed the United States for high oil prices, which he attributed to both political pressure on oil producing nations by the U.S. and the weak U.S. dollar.

Oil drops

Ramirez's comments had little upward impact on the oil markets Tuesday at mid-day: oil fell more than $2.50 to $95.17 on word that OPEC will be able to fulfill its stated goal to increase oil production by 500,000 barrels per day, Bloomberg News reported. Equally important, the markets are now more-confident that Saudi Arabia, which has the most spare capacity in OPEC, is increasing its production. Saudi Oil Minister Ali al-Naimi said Saudi Arabia is now pumping 9 million barrels per day, according to Bloomberg News.

The dollar hit a new low against the euro Tuesday, with the euro trading above $1.48 for the first time, on word the Gulf Cooperation Council was debating whether to keep its dollar pegs.

Currency Trader Andrew Resnick, formerly of Next Capital of New York, told BloggingStocks Tuesday that the elimination of dollar pegs will add to pressure on the dollar.

"The pegs support the dollar to a degree, but the real factors here are the slowness of growth in the U.S. economy, and the U.S. trade deficit," Resnick said. "Until we see those two factors change, the trend is likely to remain dollar lower, across the board."

Managing Director Bill Gross, who manages the world's biggest bond fund for Pacific Investment Management Company, wrote in a report published on the firm's web site, that he expects the U.S. Federal Reserve to lower key interest rates to 3.50% to avoid a U.S. recession.

Wall Street may interpret lower interest rates as good news for stocks, long-term, but that will not be the case with the U.S. dollar. Along with the current account, and investment performance in a particular country, a major factor in a currency's strength is the interest paid on deposits. Generally, currencies with high interest rates are valued higher than currencies with low interest rates, all other factors being equal.