President Obama has run into his first bout of political turbulence in the last few weeks as mounting deficit forecasts spook public confidence in his economic stewardship. If deficit fears force him to drop or trim some of his more ambitious policy proposals, the dollar could benefit from a macro perspective.
Deficits will remain huge over the next two years, no matter what Obama and the Congress do, a major drag on the greenback in the near-term. Only a vigorous economic rebound, which is not expected, will have material impact on deficit reduction. A rebound would bring higher tax revenues and reduced spending on the social safety net.