Although the long-term trend of the US dollar has been to weaken, especially against the Euro, for the last 2 weeks the US dollar has strengthened.
Warren Buffett predicts further weakening of the US Dollar (Bloomberg.com):
The U.S. dollar will keep weakening and Buffett feels ``no need to hedge'' against currency risk when buying large companies outside the U.S., he said.
Who am I to disagree with the legendary Buffett? He takes a long-term view on investments, and I agree with him that in the long-term the US dollar will continue to weaken. However, I believe that the US dollar will (mildly) strengthen against the Euro over the next 4 to 6 months. The Fed rate cuts are over, and there will probably be a rise in the Federal Funds rate this summer, which will have a strengthening effect on the dollar. The economic slow-down will also tend to strenghten the dollar. On the other hand, current inflationary pressures will have a weakening effect. I expect the dollar to resume its long-term trend of weakening late in 2008, as increasing inflation and economic expansion will cause the US dollar to fall to new lows against the Euro.