Now this market has heard everything, or so it seems. This is one theory that the inflation hawks will surely attempt to refute, but of course the market will be the ultimate arbiter.

Some traders and economists are now arguing that regardless of the U.S. economy's fate, the dollar wins, Bloomberg News reported Monday.

Here's the heads-or-tails, dollar-higher thinking: if the U.S. economy recovers, the dollar will strengthen, as investors seek American investments, which will generate superior returns ahead of a still-sluggish global economy.

Further, if the U.S. economy remains in its longest recession since the early 1981-82, the dollar will strengthen, as investors seek a safe haven amid uncertainty and turmoil in world markets. On Monday, the dollar strengthened about 1 cent to $1.3132 versus the euro and about one-quarter cent to $1.4642 versus the British pound amid concerns that the spreading, virulent swine flu, or H1N1 flu, would restrict business travel, delaying the global recovery.

Dollar firm despite Fed, Treasury actions

Through fiscal and monetary policy the United States has added a record $12.8 trillion in stimulus/liquidity to the economy and financial system -- a policy that economic conservatives argue will to lead to rising inflation. Can the dollar possibly avoid inflation and weakening versus the world's other, major currencies, despite the unprecedented intervention? Dollar watchers say a firm buck is possible.

Samarjit Shankar, director of global strategy for the Bank of New York Mellon's (BK) Global Markets Group, said he understands the dollar-higher logic as part of U.S. economic recovery. "If there are signs that the U.S. is the first out of the recession, it's beneficial for the dollar," Shankar told Bloomberg News Monday.

Alternatively, a weaker British pound on expected lower Q1 GDP for the United Kingdom, combined with reduced business travel stemming from heightened concerns of and precautions against further outbreaks of swine flu, would be dollar positive, Capital Treasury Services reported Monday. The swine flu, which has already killed at least 20 people in Mexico with 83 other deaths suspected, and has infected people in the U.S. and Canada, would delay the global recovery, resulting in more institutional money being 'parked' in dollars in the United States.

Dollar Analysis: Two dollar-higher scenarios, and both are credible. The U.S. recovery -- dollar higher correlation is obvious enough, and the global recession -- flight-to-safety correlation is, as well. Further, the virulent swine flu, if not checked, would only add to international stresses already slowing both global commerce and trade, by reducing business travel and contacts, and leisure travel, among other consequences. In 2008, the World Bank estimated that a flu pandemic would take $3 trillion off global GDP, Reuters reported Monday. A global recession of that depth would create a large capital surplus, with safe-havens being the preferred tactic.


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