In the currency market, the dollar shot higher against the euro. Late Friday, the euro was trading at $1.4788 vs. $1.4902 on Thursday.

Sterling also got hammered, falling to $1.8523 from $1.8788 on Thursday, as the The Office for National Statistics said the British economy saw zero growth in the second quarter of the year, compared with the first.

“The news brings to an end 64 quarters of consecutive growth and increases the likelihood that the Bank of England will move to cut rates before the new year,” said Richard Snook, economist at the Center for Economic and Business Research.

Back home, Fed chair Ben Bernanke gave the buck a boost when he said that recent developments in commodity prices and the dollar, combined with slower growth, should lead inflation pressures to ease. That led analysts to speculate that the Fed will remain committed to current interest rate levels through the year.

Still, the current financial and economic environment is one of the most challenging to Fed policymakers “in memory,” Bernanke acknowledged.

And Big Ben referred obliquely to the Fannie (NYSE:FNM) /Freddie (NYSE:FRE) train wreck, saying that, “Some particularly thorny issues are raised by the existence of financial institutions that may be perceived as ‘too big to fail,’ and the moral hazard issues that may arise when governments intervene in a financial crisis.”

Charles Calomiris, professor at Columbia University’s Graduate School of Business, offered this advice: “The Fed needs to raise (interest rates) now, slowly and predictably to restore confidence in its continued commitment to price stability.”

Source: Dollar Rallies