We wonder out loud whether anyone else, in thinking about the prospects for the surging U.S. fiscal deficit, considered that the ultimate government contribution to the economy will be far less than anyone ever expected. We say this for two reasons. Today's proposed TARP repayment is a glaringly obvious example. Between JPMorgan Chase, Goldman Sachs and Morgan Stanley a repayment of a joint $45 billion is no mean proportion of the $700 billion originally mandated by Congress to shore up the financial system. And of course, if they don't need it, investors are starting to realize that those lesser names outside of those 19 banks that underwent stress testing won't come running to the government. Instead a better outlook for the financial system will send them pitching their wares to private investors. The key to the government's plan is that they stood ready to burden an amount no matter how insane or outlandish it seemed and by stating this fact it has effectively closed the door on chapter one of the financial crisis.

As such the dollar is once again losing ground as risk appetite reduces the need for the safety of dollar assets. Today the euro rose to its highest versus the dollar after the release of a leading indicator telling us that German investors and analysts are straining at the leash when it comes to enthusiasm for domestic investments. The euro surged to above $1.3650 before recovery hopes to a bucket of cold water in the form of weak housing data in the U.S. leaving the dollar stronger at $1.3580.

The Japanese yen continues to flush hot and cold as its fate rests on the green versus fading shoots saga. On the strength of the TARP repayment story breaking overnight the yen lost ground across the board and reached ¥96.75 against the dollar and ¥132 against the euro. However, the spanner in the works in the form of the weakest reading of home starts on file in April caused a rethink to the need for safety in the shape of the yen.

While on Monday home construction companies may have registered a back-to-back rally in confidence across the industry, today's 458,000 annualized pace of home starts marked an unexpected 13% decline and coupled with the 3.3% drop in permits to undertake future projects, the message suddenly doesn't look so good. There's little solace in the fact that the pronounced weakness was evident in condominium and apartment projects and that single-family starts were again higher. It's one of those ‘take a look out of the window' moments when investors realize that building records set in the frenzied days of the past three years have left their indelible hallmark of over supply in the industry.

Home building as a sector has been dragging on GDP for a couple of years and without a rebound in activity it will remain that way. Higher prices are therefore a necessary caveat to any recovery yet the recent buoyancy as noted recently by the National Association of Realtors is built upon sales of foreclosure homes to the tune of around one half of all sales. The fact that Americans can refinance at record low rates and the fact that rising unemployment will add to likely foreclosure hardly inspires confidence in a turnaround in housing starts. The gravity of today's news was strong enough to reverse pre-market gains on stock index futures.

Yet the underlying theme remains one of dollar weakness and investors are chewing on all strands that one can imagine you could link to a recovery. The British pound is having a splendid time rallying as the British government is allegedly formulating plans to sell off some of the parts of those banks nationalized at the depth of the crisis. According to one media story the government is trying to make hay while the sun shines on the financial sector and hopes for success in its appeal to sovereign wealth funds and other investors as it sells off what now looks like rather less-tarnished family silverware. The pound breached $1.55 against the dollar earlier today and has also stolen ground against the euro standing at 87.80 pennies.

Meanwhile consumer prices at an annualized 2.3% pace was the weakest since January 2008 while a retail price index reading of 1.2% on the year marked the lowest reading since the start of record-keeping in 1948.

The Australian dollar rose to a seven month high after minutes from the Reserve Bank's May 5 meeting were released. At that meeting the rate of interest was left standing at 3%. Color from that session confirms the market's conclusion that the Australian economy might fare better than others this year and next on account of domestic strength and a degree of insulation against the shenanigans abroad. At 77.40 cents the Aussie hasn't been as powerful since October. Governor Glenn Stevens in noting Australian economic resilience predicted a resuscitation of the global economy by the end of 2009.

The Canadian dollar also continues to find favor among investors seeking to benefit from the recovery and is higher again today buying 89.42 U.S. cents.