Is The Dollar Headed For A Bounce?

When the Fed closes the door on its latest stimulus, will that lift pressure on the battered dollar and jumpstart a sustained recovery for the greenback?

Well, probably not.

The Fed initiated its $600 billionbond-buying program, known as QE2, in November as a way to stimulate the economy while keeping interest rates low and spurring more lending and spending.

The Fed haters, of which there are many, saw it slightly differently. They worried QE2 would keep long-term interest rates too low for too long and further weaken the already puny dollar.

Now, the end of QE2 might lift some of the downward pressure on the dollar. But probably not enough to spark a swift appreciation.

The upside of a down dollar

"With QE2 ending, maybe that downward pressure subsides a little bit," said John Derrick, director of research for U.S. Global Investors San Antonio. "But the Fed really isn't reversing course."

GDP growth remains lackluster, and unemployment rates are still at elevated levels. As a result, the Fed shows no signs of tightening monetary policy and hiking interest rates.

"They are still being relatively accommodating and that continues to put pressure on the dollar," Derrick said.

And in a broad sense, when the U.S. economy is not hitting on all cylinders, that means a weaker dollar, Derrick said.

"The economy hasn't really picked up, bank lending hasn't picked up, and I don't really see data that suggests otherwise," he said.

Plus, it's difficult to tease out just how much of an impact QE2 had on the dollar, since the months following the program's implementation have been a tad ... rocky.

Will Goldman kill the dollar?

The Arab spring remade the Middle East and North Africa. Japan was hit by a killer earthquake and tsunami. And there are renewed fears aboutsovereign debt problems in Europe.

All that unrest lends support to the dollar, as investors seek out traditional safe-haven currencies, contributing to a trend that has left the dollar little changed since the start of QE2.

In November, the dollar index, which measures the U.S. currency against a basket of other international currencies, stood at 77.3. On Wednesday it closed at 75.9. That's not much of a drop.

And while the dollar is little changed since the start of QE2, so is the broader economy, something Derrick said will keep pressure on the Fed to do something -- maybe QE3.

"Things just haven't been better," he said "If you have 1.5% or 2% GDP growth, that puts a lot of pressure on the Fed to do something."