A weaker dollar at least until next year and government intervention in the markets are to be expected as President Barack Obama reappointed Ben Bernanke as Federal Reserve chairman, analysts and investment strategists told CNBC Tuesday.
Obama will interrupt his vacation to make the announcement at 9 am New York time, with Bernanke at his side, a White House spokesman said Monday. Market reaction was muted in Asia and Europe early Tuesday.
"I think we're probably going to see a move away from the US dollar, ultimately Ben Bernanke has pumped $1 trillion into the economy which certainly has inflationary expectations attached to it; it's a great increase to money supply," Timothy Connors, corporate FX manager at Custom House, said.
"Ultimately we are going to see a devaluation of the US dollar on the back of that, Connors added. "Really what we'll see probably is a move away from the US dollar and into more risky currencies like the Australian dollar for example."
Not that a weaker dollar would be necessarily bad news for the US, where Bernanke is hailed by many, including former General Electric CEO Jack Welch, as a "national hero" for saving the financial system from collapse and averting an economic depression. (GE is CNBC's parent company)
The famed US consumer, who has supported the world economy until before the crisis and makes up 70 percent of the US economy, is scared by the high unemployment, plummeting house prices and mountains of debt and has stopped spending.
"What we need to see is that area of the consumer pick up," James Knightley, ING Bank analyst, told CNBC.com. "There's so much stimulus out there, there's hoping it will work."
An extra fiscal package is needed and that is not Bernanke's area, but, if economic activity continues to be weak, there will be pressure on the Fed to provide even more support via its quantitative easing program.
But if the consumer still fails to pick up, the government "would expect to want to see a weaker dollar, to boost trade," Knightley said.
However, the greenback will likely strengthen in the latter part of next year, when the Fed is expected to start raising interest rates, he added.
Bernanke's reappointment is consistent with Obama's legislative agenda and his views on the role of government in financial markets, Michael Yoshikami, president and chief investment strategist at YCMNET Advisors, told CNBC.com.
"The President's reappointment of Ben Bernanke confirms his perspective that he supports an interventionist Fed," Yoshikami said.
"It's fairly clear the Fed supports more stringent regulation of markets. This action will give some momentum to financial oversight efforts. And we will continue to have in place a chairman that believes in strong policy action," he added.
But markets are looking beyond Tuesday's appointment for longer-term solutions to the crisis and for a sustainable recovery – and the view is not necessarily pretty.
"We are seeing a statistical recovery, but we have to look at next year, 2010, whether this recovery can actually pull through and there, we have our doubts," said Hans Goetti, chief investment officer at LGT Bank in Liechtenstein.
The real test of Bernanke's policies will come when quantitative easing will end and the economy will have to function without its liquidity IV drip.
"The bad news is that I don't see any change in the way the Fed operates," Alan Capper, managing partner at Pinner Park Investments, said. "I can see the way Trichet is thinking; I can't see the long-term thinking of the Fed."
Bernanke's job is very difficult because the problem with quantitative easing is the supply side, and the exit strategy should take that into account, said Anthony Gibbs, senior gilts broker, at Vantage Capital Markets. Stagflation and a double-dip recession are still high on the list of possible risks, according to Gibbs.
"Down the line I think you're going to see a situation where, if liquidity is taken away, the government's demand for liquidity is going to crowd out everyone else and this is where I see the risk of a double-dip," Gibbs said.
But for Bernanke himself, worries about the medium and long-term should be miles away. He must be "smiling" given the current state of the labor market and how difficult it is to get a job in the US now, Andrew Freris, senior investment strategist for Asia at BNP Paribas Wealth Management, told CNBC.
Kim Khan in Singapore contributed to this story