These days, the only thing worrying the economists and analysts more than the U.S. economy is the United Kingdom economy. The U.K.'s situation is worrying currency traders, too. The dollar vaulted 5 cents Tuesday versus the British pound to $1.3890 -- an almost unprecedented move in the currency market -- as traders sensed a deepening recession in the U.K.
The dollar also strengthened 1 cent versus the euro to $1.2940 and 1.2 cents versus the Swiss franc to $1.1422. The dollar was essentially unchanged versus the yen at 90.45 yen.
Currency Trader Andrew Resnick told BloggingStocks Tuesday that with the United Kingdom's decision Monday to allocate an additional $142 billion to support the nation's banks, currency traders "have put the British economy in a time-out chair."
"The additional bank bailout kind of spooked the market Monday and with the holiday traders are making up for lost time, Resnick said. "This puts Britain's economy firmly in the later-in-the-recovery-cycle category, which is bullish for the dollar." Resnick added that he was long with the dollar versus the pound and euro.
Resnick said that the prospect of larger U.S. budget deficits does not appear to lead to a break down in confidence in the greenback. "So long traders believe the fiscal stimulus package will improve economic conditions, the dollar will hold its own," Resnick said. "But if we don't see signs of improving conditions by mid-year, the dollar would come under pressure then."
Forex Analysis: Trader Resnick's comments underscores an axiom about debt: it's not the level of debt, it's the ability to service that debt. So long as the U.S. economy recovers and expands, the debt can be serviced: a tax increase after the recovery has taken hold also will help pay-down the budget deficit and national debt.
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