The greenback is back as the centre of attention on the markets. The decline of the US dollar over the past couple of days has highlighted some key issues for the world economy.

Yesterday its weaker trend continued, closing close to $1.15 against the euro and dropping below 111 yen at one stage, before recovering a little later.

A falling dollar helps US exporters, but hurts EU growth prospects. Meanwhile, the currency's value is also a crucial consideration for investors in US assets - and the US needs plenty of these to finance a huge and growing current account balance of payments deficit. The money which flows out of the US economy because of the excess of imports over exports must be made up by investment from overseas in capital assets such as shares and bonds.

The dollar's decline over the last couple of days was sparked by comments after the weekend meeting of finance ministers from the G7 industrialised countries. By calling for "flexibility" in foreign exchange rates they were seen to be hinting that Japan in particular should not intervene to try to hold down the rising yen.

This was seen as further evidence that the US had abandoned its strong dollar policy, despite subsequent reassurances from Mr Bush's Treasury Secretary, Mr John Snow, that this is not the case.

The Bush administration is believed to be happy to see the dollar weakening, in a bid to give the economy a pre-election boost. However, a dollar fall would damage already weak growth prospects in the euro zone by hitting EU exports to the US - and none other than Mr Snow said at the IMF/World Bank meeting yesterday that the US could not be the sole engine of growth. With about one-fifth of Irish exports going to the US, Ireland is particularly affected by the dollar trend.

So is the dollar now set for a substantial fall? Most analysts think probably not, but warn that the possibility cannot be by any means ruled out. Mr John Beggs, chief economist at AIB Bank, believes that, on balance, strong US growth will support the dollar which he sees stabilising around its current level and trading in the $1.10-$1.15 range in the months ahead.

However, because of fears about the US balance of payments deficit, he does say that the risk of a sharp dollar fall is "material enough" and that exporters should consider hedging their exposure to this.

IIB Bank economist Mr Austin Hughes also warns of the risk of a dollar "accident" - a sharp disorderly decline - and sees a danger in the Bush administration's ambiguous position towards the currency. Mr Hughes says he is reluctant to change his year end forecast of $1.15 for the euro, but that the risk now lies towards a $1.15-$1.20 range being established and a euro rise above $1.20 moving into next year.

Meanwhile, highlighting the divergence of views about the currency, an outlook published yesterday by Bank of Ireland predicted that stronger US growth would support the dollar this year, forecasting a fall of the euro to dollar parity over the next six to nine months, before a recovery in the euro zone economy starts to lend support to the EU currency.

Which of these forecasts is correct will have an important impact on Irish growth prospects moving into next year. And the risk of a dollar "accident" remains a threat to the international economy, even if it is likely to take some geo-political "event" to spark it.