I'd read the falling dollar as a shot from the global marketplace across the Fed's bow, since our allies are being forced to import inflation by the irresponsible and self-serving policies of the US ruling elite, thereby threatening their economies and rulers as well. (Think the Saudis.)

The US could get away with such imperious behavior when it was a lender nation, but the situation has changed now that it is a debtor nation. About the only thing that the US could do now is to try forcing compliance with its voodoo economics by threatening to use its military might, which after Iraq and Afghanistan is highly questionable in effectiveness. The ruling elite in the US clearly is betting that those holding dollar reserves and debt will move to prop up the dollar to save their investment. Maybe they'll win the game of playing chicken this time, as Bush has been doing in Congress. But if the US doesn't get its stuff together relatively soon, at some point.... The markets aren't spineless Dems. In the log run, markets reprice risk when it gets too far out of whack. This is beginning to happen now.

Given the reaction to this cut, I would suspect that any further cutting will greatly undermine the dollar if this one doesn't do it. The Fed doesn't have much wiggle room at this point. It's pretty much exhausted its ammunition by over-reacting. Eventually, it will have to let the markets take care of the imbalances themselves, which won't be pretty for the US, I'm afraid. Look at the volume of ARM resets waiting to kick in come the first quarter, for example.