Dollar plays the waiting game

NEW YORK (CNNMoney.com) -- The dollar remained weak but regained some ground Friday as investors reacted positively to Fed chair Ben Bernanke's comments about the central bank's plans to pump more money into the economy.

The prospect of the Fed purchasing massive amounts of Treasurys - a process know as quantitative easing - has kept the dollar under pressure in recent weeks as investors remained nervous about the Fed's intentions.

That speculation had pushed the dollar index to its lowest level since December 2009 on Thursday. The index tracks the dollar against a basket of currencies.

But Bernanke's speech actually offered some support to the beleaguered currency.

Boris Schlossberg, the director of currency research at GFT Forex, said the market had already priced in a massive amount of quantitative easing, and the Fed's action might not go as far as investors had thought.

"I think the Fed realizes they have created a monster in terms of telegraphing their intentions," Schlossberg said.

"Bernanke came out today and confirmed what the market knew. The one thing he didn't say was the size and scope of Fed action," he added.

The implications of quantitative easing are "stark" for the dollar, which will likely see further erosion, said Michael Woolfolk, the managing director of BNY Mellon Global Markets.

And that has big time implications.

"Bernanke has effectively rolled the dice on his own legacy," Woolfolk wrote in a research note. "We can only hope that his gamble pays off, and QE measures actually do boost inflation."

While the markets wait for the final word on the QE from the Fed that will come at its November meeting, the currency market will have a slew of economic reports to key off of.

"It's really going to be in many ways for the next month a data point by data point market," Schlossberg said.

And while QE dominated the chatter on Friday, there was other good news for the dollar.

"What has been lost in all this," Woolfolk said. "Is we had a retail sales report that was so strong, if it was any stronger, we would have to question the economists putting it together."

In its report on September retail sales, the Commerce Department said total retail sales rose 0.6% from the previous month to $367.7 billion, news that indicates shoppers are looking to spend in advance of the holiday season.

That kind of good news could lift the dollar as economic and earnings reports influence the market in the comings weeks. Another question that needs answering: elections.

If Republicans sweep to power in November, investors will be paying attention to policy shifts from the new sheriffs in town.