It may be that the recent statements made by the Open Market Committee and the recent actions are engendering greater confidence in the dollar. We'll see over time.

... [Currency markets are] manic depressive ... they overshoot. We've had some volatility there, and I'd like to remind people that a lot of people made a mistake by selling the U.S. economy short for a long time.

[Fisher said he is] entertained when I read that today the dollar was weak or yesterday the dollar was weak because the U.S. economy is showing slower growth, then the next day it says it's because inflation was reported higher. I always feel like screaming, "Guys, make up your mind!" So I"m not surprised that the dollar strengthened. The question is what is the trend over time. ... You have to keep in mind that these are manic depressive mechanisms that overshoot on both sides. They're very emotional.

Markets are manic depressive ... interest rate differentials drive currency levels.

From Q&A as reported by Reuters, when asked about the dollar.

What I can tell you is that no central banker ... can be indifferent to the value of his currency.

From Q&A as reported by Market News International

When asked whether he predicts a ``dollar crisis,'' he said, ``you don't have to predict it, you're in it.''

As reported by Bloomberg News

Sizeable depreciations of the nominal exchange rate exert fairly small effects on consumer prices across a wide set of industrial countries, and these effects have declined over the past two decades.  Exchange rate depreciations are thus likely to have less adverse effects on inflation than they have had in the past.  

Exchange rate fluctuations are not a problem unless they actually lead to reallocation of resources...Fluctuations in exchange rates are something that you have to deal with, but as you know sometimes the media make a huge deal of fluctuations that is way over the top.

No central bank can be indifferent to the fall of the value of its currency. It's important to look at all sorts of policy changes people are going to make in this context.

From audience Q&A, as reported by Market News International, Bloomberg

[T]he FOMC must be careful to not undermine that recuperative process. Here, of course, I refer to the potential harm to the consumer and the business and financial sectors alike by unwittingly allowing the perception to take hold that, as the New York Times editorialized in its lead front page article last Thursday, “the Federal Reserve, signaled [its] readiness … to bolster the economy with cheaper money even though inflation is picking up speed.”[2]

Talk of “cheap money” makes my skin crawl. The words imply a debased currency and inflation and the harsh medicine that inevitably must be administered to purge it. So you should not be surprised that I consider the perception that the Fed is pursuing a cheap-money strategy, should it take root, to be a paramount risk to the long-term welfare of the U.S. economy.

I believe the Times overstates its case. Chairman Bernanke made clear in his congressional testimony last week that we are monitoring inflationary pressures and expectations closely. And yet, I understand the source of the Times’ sentiment.

Fisher said that FX markets are "manic-depressive mechanisms".

"The mood comes and goes," Fisher said, noting that the days of the vvery weak euro exchange rate against the dollar were not so long ago. Fisher said that central bankers should not react to short-term movements in exchange rates.

From Q&A as reported by Market News International

We, obviously, watch the dollar very carefully. It's a very important economic variable.

From the Q&A session

... I'm not particularly concerned about any major change in the holdings of China or any other country.

There is, on the margin, sovereign wealth funds and portions of reserve accumulations that are being devoted to higher return, which means spreading across instruments, as well as across currencies.

But again, I don't see any significant change in the broad holdings of dollars around the country -- around the world.  Dollars remains the dominant reserve asset and I expect that to continue to be the case.

I would like to add, though, that the strength of the dollar, in the medium term, will ultimately depend not on those portfolio choices, so much as on the strength of the U.S. economy, our trade situation and on the openness of our financial markets to foreign capital.

And I'm optimistic on those fronts. And I do believe that that will lead to a sound dollar in the medium term.

The large industrial economies have, by and large, decided to let their currencies adjust to changing circumstances without official intervention in exchange markets. Japan aside, it is now close to seven years since the last episode of concerted intervention among the major economies; and there has been no Japanese intervention for two years.

Fundamentally, the only realistic choice for policymakers is to equip their economies with the flexibility to cope more successfully in this increasingly integrated global economy. And this means preparing for a world of more rather than less flexibility in exchange rate regimes.

... [T]he dramatic rise in the level of official reserves in much of the emerging world is not simply the consequence of a desire for a greater financial cushion against external vulnerability. It also results from the lingering aversion to letting exchange rates adjust upwards in response to market forces.

As capital markets become more open, this middle ground is harder to sustain. The broadening recognition of this is leading to a gradual increase in exchange rate flexibility, and this process is likely to continue. The pace of progress, progress in the direction of more openness to capital flows and greater exchange rate flexibility, will depend in part on the pace at which these governments are able to strengthen the resilience of the domestic financial system and set in place the broader institutional framework and supervisory regime that are vital for an open economy.

In the end, however, policymakers here and abroad cannot lose sight of a fundamental truth:  In a world of separate currencies that can fluctuate against each other over time, each country’s central bank determines its inflation rate.