The British pound (CME: $BPY) hit $1.60 for the first time in more than half a year this morning, thanks to improved service company sentiment and an increase in mortgage approvals. A rise in consumer confidence in the United States increased risk appetite and lifted the pound, as well.

The news was good enough for a 0.5% gain for the pound against the dollar, a 0.6% increase relative to the euro and 1% against the yen (CME: /JY\M09).

The Federal Reserve lowered interest rates to near zero last week. That in itself may have been enough to restore confidence in our economy. But Ben Bernanke took the boldest step ever. He topped this off by buying Treasury securities and creating money like a drunken sailor. He says this needs to be done. Whether or not he's right remains to be seen.

Much of what happens in the foreign currency markets is a matter of perception. Traders for central banks around the world make their decisions to buy or sell a currency based on the actions of the government that the currency represents. For this reason many world governments viewed Ben Bernanke's actions to create such piles of money as a walk on the wild side and decided to sell dollars. How far the Federal Reserve goes in printing money is anyone's guess. We have to keep in mind that, except for a few periodic reports to Congress, there are virtually no checks and balances on the Fed. They were intended to operate as a separate entity apart from any branch of government. Meanwhile, the fate of our economy and to some extent the world economy is in the hands of Ben Bernanke and his merry men.

The euro climbed to a record-high $1.6020 versus the dollar Tuesday, after the European Central Bank signaled that they'll increase interest rates -- despite slowing growth -- if inflation accelerates, Bloomberg News reported.

The euro rose about 1.5 cents to $1.6020 versus the dollar before paring some gains to trade around $1.5985 in Tuesday afternoon trading. The Euro also rose about four-tenths of a pence against the British pound to 80.20 pence.

Dollar falls, again

Meanwhile, the dollar retreated across the board, falling about 1.5 cents to $1.9950 versus the British pound and about one-half yen to 102.95 versus Japan's yen. Independent currency trader Andrew Resnick told BloggingStocks Tuesday that traders responded to the ECB's announcement by doing what you'd expect: they bought the euro.

"The only thing holding back the euro was the possibility the ECB would cut rates. The fundamentals have been in the euro's favor for several years. The market had priced-in a possible rate cut by the ECB, but when ECB comments came in today the market quickly bid up the euro," Resnick said. He added that he is presently long with the euro against the dollar.

With all the focus on the US Dollar's current free-fall and pundits predicting further weakness for the greenback, a little perspective is in order.

First of all, where have all the pundits been for the last five years? It's not like the dollars fall from grace started yesterday. In fact the dollar's fall has been a result of global growth, not a faltering US economy. The fact is that even with the subprime mess, rising commodity prices and the war in Iraq, the US economy is growing just fine. Could all the doomsayers in the media have a political agenda? Remember, an election is approaching.

Bloomberg News reports that Brazilian supermodel Gisele Bundchen refuses to be paid in dollars. In addition to landing undefeated (9-0) New England Patriots quarterback Tom Brady -- although that relationship could be on the rocks -- she is one savvy currency trader.

Gisele Bundchen is proving to be a shrewd analyst of the U.S. dollar's weakness. When Bundchen signed a contract in August to represent Pantene hair products for Procter & Gamble Co. (NYSE: PG), she demanded payment in euros. She'll also get euros for the deal she reached last October with Dolce & Gabbana SpA in Milan to promote the Italian designer's new fragrance.

"Contracts starting now are more attractive in euros because we don't know what will happen to the dollar," Patricia Bundchen, the model's twin sister and manager in Brazil, said in a telephone interview in September from Sao Paulo.

Those Bundchens are smart cookies! Too bad I can't say the same for Treasury Secretary Hank Paulson and his strong dollar policy.

Lately, sentiment towards the U.S. dollar has grown increasingly negative and American investors have continued to weight portfolios in favor of overseas markets.

Yet, despite all the bearishness, the greenback has managed to recover smartly from its April lows.

In fact, on a technical basis, the U.S. Dollar Index, which reflects the unit's value against a basket of six other major currencies, has made what appears to be an important bottom. With the recent move upward through a key downtrend, the currency seems poised to rally even further.

One reason for the turnaround may be the prospect that U.S. interest rates will continue rising instead of falling, as many marketwatchers had been expecting only a short time ago.

Nervous profit-taking by some holders of foreign securities looking to lock in substantial paper profits, as well as short-covering by frustrated short-sellers among the large contingent of dollar bears, may also be contributing factors.

Finally, there may be "safe haven" buying of the greenback taking place on worries that global markets and geopolitical conditions are becoming increasingly unsettled.

Whatever the reasons, it's time to reconsider an overly negative stance on the U.S. currency.

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle: An Insider's Guide to Successful Investing in a Changing World.