Dollar and Equity Indicies

I've read many times that the dollar has an inverse relationship to the equity indicies - well at least since March.

Can the FED iteself make the dollar "weaker"? Or is it everyone has a bearish sentimment to the dollar?

To understand the current paradigm I think you have to go back a few months to when the market was really melting down. Investors around the world piled into US Treasuries as the only "safe" investments which drove the price of the dollar up. Now, as other markets are seen as more stable, investors are moving out of treasuries. Obviously moving from Treasuries to US stocks would not cause a change in demand for dollars, but as US equity indices are a proxy for world markets, there is some relationship there. Eventually this is going to change as the Treasury market balances out and US equity markets become less related to other global assets and the market begins to reflect fundamental factors like interest rates and inflation again. I think this process has already begun. Interest rates and sovereign creditworthiness are beginning to drive trading.

The Fed can very easily make the dollar weaker in the short term, simply by increasing the supply of dollars (lowering interest rates) or vice versa. But by its charter the Fed's goals are inflation and unemployment, not dollar value. Their actions impact the dollar, but it's not their focus.

Thanks - can the FED or PPT control the dollar on an intraday basis?

Of course any action taken by the Fed is going to have an impact on that given day (or even simply their words), but I think your question is whether they take an active role in moving the currency markets, and the answer is no in both the long term and short term, at least in the US. Many other countries' central banks do, either by buying and selling directly or by imposing laws or taxes or other restrictions against transactions in their currency.

Yes, the Fed's goal is to insure moderate inflation rate and low unemployment rate. Given the current economic situation when inflation is still at record low and unemployment at record high, they have no reason to increase the Fed funds rate anytime soon. My guess is that they will probably increase the rate in the fourth quarter of 2010, one quarter after average estimation by analyst. And the increase would be stop-go, meaning just to surprise the market with sudden rate increase but the actual increase is small, some kind of mental game. Anyway, the US economy needs time to recover itself from its abyss.