It was a one-two punch from the two most powerful financial players in Washington.

Their messages were designed to stem what has been a tumultuous fall for the most widely traded currency in the world, the U.S. dollar.

In an usual move, U.S. Federal Reserve Board Chairman Ben Bernanke came out declaring the weakness in the dollar “contributed to the unwelcome rise in import prices and consumer price inflation. ” The central bank is “attentive to the implications,” he added.

The interpretation by global traders is "Washington won’t stand by watching the dollar fall further."

Bernanke’s comments followed a high profile visit to the Middle East this week by U.S. Treasury Secretary Henry Paulson, the former Chairman and CEO of Goldman Sachs.

In his only international interview on this trip, Paulson told CNN's Marketplace Middle East, "The economic fundamentals in our economy are longer term quite strong. And what I've said is I believe that those fundamentals are going to be reflected in the value of our currency.”

The think tank for the industrialized world, the OECD, does not share that optimism. In its annual economic forecast, the Paris based body said that U.S. growth would only be 1.2 percent this year, falling slightly to 1.1 percent next year.

While Paulson did not want to be drawn into that specific report, he did take issue with its projections.

“I expect growth to be to be greater at year end. And I certainly would expect it to be greater in 2009 than in 2008. So I wouldn't be signing on to that forecast,” he told CNN.

This is welcomed news in the Middle East, especially in the Gulf, where five countries still tie their fortunes (literally billions of dollars) to the U.S. dollar. Both Bernanke and Paulson seem to be indicating that the worst will soon be over and that they both have no intention of seeing the U.S. dollar lose its role as the anchor currency.

So far, the U.S. is on the receiving end of support in the region. Despite the onslaught of quite painful double digit inflation, leaders in the region are standing by their pegs.

The latest vote of confidence came from Sheikh Mohammed bin Rashid Al-Maktoum, the Prime Minister of the United Arab Emirates and Ruler of Dubai who said, “the linkage between the dirham and the dollar would continue so long as this was in the best interest of the U.A.E.”

The last bit of that quote is what I find the most interesting. It would not be in the best interest of the U.A.E. or Dubai if it continues to fall. So like Bernanke and Paulson, Sheikh Mohammed would like to believe the worst is over. If not, one cannot expect them to stay loyal to the peg.

Facetime in the Middle East

For an administration which did not spend a great deal of time in the region in the last seven years, they seem to be making up for lost time in 2008. U.S. President George W. Bush has visited the region twice, Vice President Richard Cheney once, followed by Secretary Paulson and Deputy Treasury Secretary Robert Kimmit.

After a rush to sign legislation around the Committee on Foreign Investment last autumn after the Dubai Ports World debate and subsequent investments into Citigroup and Merrill Lynch, the Treasury department wants to make clear that the U.S. does welcome investment.

Asked whether this rush to legislate was in hindsight a mistake, Paulson responded, “Oh, I think exactly the opposite. The process which I chair clarified the rules, made it very clear that the only thing we were focused on was national security. And I think this makes the process easier and clearer and sovereign wealth funds are very much welcomed.”

As a former key player on Wall Street, Paulson knows the advantage of having funds invested in the U.S., but he also knows the impact of the protectionist signals that were initially sent from Washington last autumn.

It will take time to rebuild trust in the U.S. dollar and time to know whether money from the Gulf is truly welcomed or raises more questions from Capitol Hill.

Posted by CNN's John Defterios: 11:33 AM

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