For anybody bullish on the dollar, here is a VERY good read from Bloomberg...

Dollar Optimism Dissipates as Confidence in Fed Ebbs (Update1)

By Ye Xie and Stanley White

July 16 (Bloomberg) -- The U.S. dollar will weaken against the euro, yen, Brazilian real and Swiss franc in the next six months as confidence in Federal Reserve and Treasury efforts to keep the economy out of a recession fades, a survey of Bloomberg users showed.

U.S. investors turned bearish on the dollar for the first time in three months, according to respondents in the monthly Bloomberg Professional Global Confidence Index, which questioned 5,450 users from Los Angles to Paris to Tokyo. Participants became bullish on the franc for the first time since March and less pessimistic about the British pound.

The results are consistent with expectations of futures traders, who are placing less of a chance that the Fed will raise its benchmark interest rate from 2 percent this year. The Dollar Index, which tracks the currency against six of U.S. major trading partners, fell to a three-month low yesterday on concern that losses at Fannie Mae and Freddie Mac, the two largest U.S. mortgage firms, will slow economic growth.

``The markets were naïve to think that the Fed's efforts to restore stability would be enough to prompt an immediate recovery,'' said Paresh Upadhyaya, who helps oversee about $50 billion in currency assets as a senior vice president at Putnam Investments in Boston and participated in the survey. ``It takes time to resolve the issues in the housing and financial sectors, and these problems will prevent any sustained recovery of the dollar.''

The index of expectations on the dollar for U.S. users fell to 45.44 in July from 58.49 in June. A reading above 50 indicates participants expect the currency to appreciate. Users in Switzerland registered 59.37, up from 42.24 last month. The index rose to 42.41 in U.K., the most since March.

Treasury Initiative

Currency strategists are more bullish on the greenback than the survey respondents. By the end of the year, the dollar will strengthen to $1.50 versus the euro, according to the median of 38 analysts in a Bloomberg survey.

The dollar declined to $1.6038 per euro yesterday, the lowest since the introduction of the shared European currency in 1999, and was at $1.5844 at 11:38 a.m. in New York. The dollar weakened the most against the yen yesterday since the March collapse of Bear Stearns Cos. It traded at 104.69 yen today. It traded at 1.5980 against the real and 1.015 versus the Swiss franc.

Treasury Secretary Henry Paulson said July 13 that he would seek authority from Congress to buy stakes in Fannie and Freddie and their credit lines. The Fed authorized the companies to borrow directly from the central bank. The dollar may extend its declines below $1.60 because of the potential costs of the rescue, UBS AG and Barclays Plc said in reports yesterday.

`Downside Risks'

Users in the U.S. became less certain that the Fed will raise borrowing costs. The index measuring the outlook for the federal funds rate fell to 57.35, from 60.35 in June. Their views on the U.S. economy turned more negative, pushing the index to 8.77, the lowest since March.

Treasuries rose after Bernanke told Congress yesterday that there are ``significant downside risks'' to growth, abandoning the message of the Fed's June policy statement that said the risks had ``diminished somewhat,'' while repeating warnings on inflation. The shift reflects renewed turmoil in markets that forced the Treasury and Fed to mount the rescue of Fannie Mae and Freddie Mac.

Users are not as sure 10-year Treasury yields will rise. The sentiment index on yields fell to 66.72, from 70.76 in June.

European Pessimism

UBS, the second-biggest currency trader, is keeping its forecast for the euro to fall to $1.53 by end of the third quarter and to $1.40 by the end of 2008 as Europe's economy slows, said Geoffrey Yu, a London-based strategist. The European Central Bank lifted its main refinancing rate by half a percentage point to a seven-year high of 4.25 percent on July 3.

Participants in Switzerland continued to forecast the Swiss National Bank will raise its benchmark rate from 2.75 percent. The index that measures expectations for borrowing costs rose to 65.11 in July from 61.21 the previous month.

Users in Japan are more optimistic about the outlook for the yen, with a reading of 55.08, up from 43.08 in the previous month. The yen rose 15.4 percent against the dollar in the past year as the collapse of the U.S. subprime mortgage market prompted investors to pare carry trades funded in the Japanese currency.

In carry trades investors borrow in countries with low interest rates and invest in higher-yielding assets elsewhere. The risk is that currency moves erase profits. Japan's 0.5 percent central bank rate is the lowest among major economies.

``We've been bullish on the yen since earlier this month,'' said Kimihiko Tomita, head of foreign exchange in Tokyo at State Street Bank & Trust Co., a unit of the world's largest money manager. ``It's clear that it will take a lot of time to solve problems in the financial system. We expect risk aversion to boost the yen.''