This really puts the spotlight very acutely on the Fed minutes this afternoon.

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.

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.

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 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.