The dollar has lost 12% against a basket currencies since President Barack Obama took office in january, But selling of the greenback has been orderly, and there is no dollar crisis, analysts say. Dollar sentiment among market participants remains extremely negative, however, and the buildup of positions against the greenback in the future marekts could easily accelerate the pace of the dollar’s decline.

The climb in “short” positions among speculators to the highest level in more than a year is one reason that US administration and Federal Reserve officials have launched a verbal campaign in support of the dollar. The Obama administration recognizes the dollar’s important role in the global financial system and it will do everything possible to sustain confidence in the dollar. The dollar’s extensive role as a reserve currency allows the US Treasury to pay a lower interest rate on its liabilities than other borrowers.

However, the strong-dollar policy does not prevent the dollar from falling as a consequence of the pursuit of other policies, such as an accommodative monetary policy. An economic recovery sufficiently strong to prompt the Fed to normalize monetary policy may see that the condidence has not been irretrievably lost.

The speed and style of the Fed’s exit strategy are likely to be key issues for the dollar over the next few months. The Fed will likely start draining reserves before raising interest rates.