On Tuesday, dollar bulls were hoping the Federal Reserve would take a hawkish stance on inflation and signal that an interest rates hike.

That didn’t happen. Instead, the Fed issued a fairly neutral statement. It said “downside risks to growth remain” - dropping a reference in June’s statement to “diminished” dangers - and price increases are of “significant concern.”

Chris Gaffney in The Daily Reckoning says the statement indicates the Fed realizes it will be forced to leave rates untouched. This leaves Mr. Market is to focus on the European Central Bank. Expect more inflation fighting from Jean-Claude Trichet and his pals…

Big Ben signaled to the markets that he was ‘uncomfortable’ with the weakness of the dollar, and the ramifications that a weak dollar has on inflation. He actually blamed the weak dollar on inflation! Whoa there partner! You’re barking up the wrong tree!

I saw a report on the IFO’s correlation with the euro’s past moves to higher ground… Made sense to me, as strong IFO reports came out right before the euro moved past previous big figures…

I don’t know at this point if this is a true reversal of the dollar rally or a false dawn… But either way… Just to see some chinks in the dollar right about this time is probably a good thing to currency holders!

Yellen stated that she ‘would be pleased’ if the economy was strong enough to raise rates by year-end. That’s all nice and sweet, Ms. Yellen… But did you realize you would move the markets with that ‘wish upon a star’?

MySpace Expands Deeper into Cyberspace; News Corp. Posts $2.7 Billion Profit; Gasoline and Crude Hit New Records; Weekly Unemployment Applications Decline; Latin America Attracts $106 Billion in 2007; ECB and BOE on Pause; New Alcoa CEO; Barr Comes Up Short.

Good day… When I signed off yesterday, several of the currencies were at or near record levels versus the U.S. dollar and the U.S. data that were going to be released didn’t look supportive.