No news can be good news for the currency market and this certainly seems to be the case for the US dollar, which has rallied on little economic data.

Volatility in the currency market has hit an extreme, which means that it may soon revert back to the mean.

The US dollar has staged a modest recovery over the past week on the relief that there have been no new blowups in the US financial sector.

The US dollar has resumed its slide as traders give in to the Fed’s cautiousness. With Wall Street and Main Street both feeling the pain of slower growth and a depressed housing market, Bernanke warned that there could be a contraction in the US economy in the first half of the year.

Investors that have cut back on dollar denominated holdings in the Q1 are jumping back in force with Lehman Brothers raising $4 billion from a stock sale to calm investors and UBS announcing a similar plan to replenish capital.

The Federal Reserve has cut interest rates, bailed out a US bank for the very first time since the Depression and announced that they are willing to swap their safe US Treasuries for risky and dubious mortgage backed securities.  Despite their efforts however, the US economy is still in trouble and liquidity in the money markets remain a problem.

We have seen some big moves in the currency market this past week, but these fluctuations should pale in comparison to the action that we expect to see next week.

According to an article in the Times, Nationwide, the country’s second largest mortgage lender is planning to turn away business.

The euro broke 1.58 against the US dollar today, leaving many traders wondering whether the next stop will be 1.60.

The sell-off in the US dollar resumed sooner than we had initially anticipated on the heels of surprisingly weak economic data.