U.S. Dollar Upside May Not Be So Limited

There are concerns that the recent relative strength of the U.S. dollar may not last. Indeed, those involved in spread betting and contracts for differences on the spot forex market are considering the fact that the growing federal deficit may prevent the U.S. dollar from reaching its potential.

However, the deficit may not be so limiting as some may think. GFT's Kathy Lien explains in FX360 that the deficit could very easily be forgotten as U.S. economic recovery picks up:

The growing budget deficit is one of the primary reasons why some economists believe that the upside in the dollar is limited. We beg to differ since we know that forex traders tend to have short attention spans and the positive economic data from the U.S. coupled with the exit strategies that are being implemented by the Federal Reserve should help to boost the dollar, particularly against the Japanese Yen.

It all depends on perception. Another thing in the U.S. dollar's favour is the fact that things in Europe and Britain are worse right now. Greece is causing trouble in the euro zone, and British economic recovery is moving so slow that forex traders have no choice but to focus on Britain's  mounting debt. All of this means that the U.S. dollar is the clear choice -- for now.