Fed chief Bernanke today voiced concerns about weak dollar that further pressures inflation. The USD suddenly got a nice boost shortly after the comments. The question is whether the US dollar has ended its free fall during the past year. Most forex analysts point out that whether it’s ended or not, the dollar will get stronger at least in short term.

The way I see it, today’s advance of the USD was not entirely caused by Bernanke’s remarks, but partly based on US data during the past week or two. The US economy has shown signs of recovery, although not so much as one can be certain of a turn. Last week we saw durable goods come out much better than expected, 2.5% compared to expected -0.4%. Then PMI exceeded forecast. Earlier this week, both ISM and construction spending showed signs of great improvement. There has been no negative surprises with US economic indicators for quite a while. So it seems that the US economy has regained its strength.

Yet, even the most confident economist can’t be so sure. As you have seen the negative reaction in stock market during the past week. Financial industry still brings fresh worries to investors, posing a fundamental question on the dollar’s stability. It’s true that the Fed is facing tremendously inflation pressure, but one can’t forget that it’s also dealing with a serious recession in place. In other words, it’s a dilemma where no one can be certain which course of action Bernanke will have to take.

So if you’re a conservative trader like I am, it’s reasonable to stay away from the market at the moment until clearer signs of recovery, or try adopting stricter risk control. My gut is telling me it’s not over. The dollar weakness will still be here for some time.