The American dollar is managing to hold its own even after the governmental bailout of major mortgage lender Fannie Mae and Freddie Mac.  The two mortgage companies, like every other company in the United States, has been effected by the up and down yo-yoing of the economy, so much to the point that instead of having to cope with thousands of foreclosures, they have asked for help.  That help is coming in the form of additional liquidity provided by the monetary authorities in the nation.  According to Hank Paulson, the Treasure Secretary, the government is preparing to buy stakes in Fannie Mae and Freddie Mac is conditions continue to go down hill.

Surprisingly enough, the announcement that the Treasury department was going to help these two mortgage lenders actually gave the American dollar a little bit of a boost.  While the boost itself is limited, the announcement did help soothe quite a few worried investors and the public itself.  The bailout was covered in depth by the New York Times newspaper last week, heralding the action.  This small bit of hope came during a time when the economy is less than optimal and right before the earnings results for most major U.S. banks hit the public.

Monetary strategists, however, feel that the help is only going to provide a temporary relief.  The dollar is still very negative among the international market and alleviating the effects of the terrible economic conditions is not solving the problems that are causing them.  Everyone is looking to Ben Bernanke, the U.S. Federal Reserve Chairman, curious as to what his bi-annual update is going to include when he presents it to Congress Tuesday.  Many markets are interested in seeing if he backs off from the anti-inflationary comments he has been making during this stressing time, not admitting that the United States is in financial stress.

Because of Bernanke’s attitude, many money markets have eased off their expectations on monetary tightening and the consensus of opinion is that the Fed will not implement any hikes until the fall.  The Fed should be keeping an eye on what the European Central Bank is doing, however, as they are set to act in the best interests of the Euro zone community in an effort to ease the economic stress their own citizens are under thanks to the weak American economy.

According to a Bank of New York spokesperson in regards to the European Central Bank, “…an assault on $1.60 for the Euro still looks a realistic proposition from here with the ECB’s ostensibly neutral policy statement more a reflection upon currency policy sensitivity than the Bank’s contentment in its fight with price instability.”  The European Central Bank may be looking at taking a more aggressive stance if the Federal Reserve does not take action.  So far they have lifted its key refi rate a quarter of a point and they are standing by their claim that they will lift it no more.  The Euro zone’s inflation figures will be watched carefully over the next few months so that the European Central Bank can act accordingly if it changes for the worse.