Everybody knows they (investors) want to buy high yielding currencies and the yen still seems like the best currency to sell to fund that.

We've seen markets get ahead of themselves in bonds and in currencies as well. There are signs that markets have now gotten too optimistic about not only the size of the U.S. recovery, but the speed; our medium-term forecast is still very much of euro strength and dollar weakness.

The yen continued to strengthen this morning at the expense of high yielding currencies such as Australian and New Zealand dollars as well as the US dollar.

Yielding is sometimes the best way of succeeding

What the current deficit does is make the dollar vulnerable. It means we could see a vicious cycle, where a declining dollar makes U.S. assets less attractive to foreign investors, which weakens our assets further, which puts further pressure on the dollar.

Given that the economic data will be strong, people will wonder why the Fed is not moving, which could cause some volatility in the markets. But we think the Fed will remain on hold for quite some time.