I think a lot of gloom still exists about the size of the deficit and the market is punishing the dollar for that.

The market reacted exactly the way they wanted it to, which was to flatten the yield curve. I think the point is clear: Policy makers are going to do whatever they can to help the Fed. The rate cuts that the Fed is putting through are only hitting the short curve; they're only psychological.

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.

I don't think there is a tremendous amount the Fed can do, but they can't stay on the sidelines. Unless the data stream improves, they have to cut rates.

The bin Laden tape has led to some dollar selling. The tape fits with the view of those who think the U.S. economy is at risk of falling into a sinkhole.

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.