The dollar keeps falling sharply making me wonder whether my "Not bearish for the dollar" call that I made yesterday was very insightful. There's a widespread belief that the Fed is "monetizing the debt," which it is not. The concept itself is totally not applicable in floating FX systems where governments spend by crediting bank accounts. Under this paradigm there is no need for a "buyer of last resort."
Moreover, the only thing the really Fed did yeterday was say it was going to bring down long term interest rates and it does this by manipulating reserve balances. In this case it will be buying long-term bonds to bring down long-term rates.
Forex trends have not been about interest rates in the past year and I still don't think that the rate argument applies, however, if enough people believe it or believe in debt monetization and they are itching to sell the dollar, they'll sell. It becomes a self-fulfilling prophecy to a point.