The US economy is not out of the woods.

The Dow plummeted 237 points, 10-Year US Treasury Bond yields fell to the lowest level since March 2004 ,and the US dollar fell to a fresh two year low against the Japanese yen.

Further dollar weakness is to be expected; the only thing that can save the US dollar at this point is strong holiday spending.

Sharp moves in the bond market indicate that investors are rushing into inflation-protected assets that carry no credit risk because their concerns about the US economy are growing. The prospect of more difficult times ahead has traders pricing in a 100 percent chance of a quarter point rate cut next month.

The US dollar is up across the board but that strength is more of a reflection of rising risk aversion than a rosier outlook for the US economy.

The US dollar faltered through end-of-week currency trading, as a marginal improvement in risk appetite and disappointing economic data combined to sink the greenback against major forex counterparts.

Even though inflation and manufacturing data were decent, and gold prices plummeted as much as $30 intraday, the outlook for the US economy and US dollar still faces many risks.

The Fed will be publishing projections for overall inflation and core inflation 3 years forwarded and updating them quarterly instead of biannually, which indicates that at least internally the Fed has an inflation target.

Even though the US dollar has seen some big moves over the past two trading days, the volatility was not triggered by a shift in the market’s attitude towards the dollar but instead by the sharp swings in the US equity markets and carry trades.