The decline of the US dollar has been the main feature of international financial markets in recent months. Yesterday the euro hit yet another high of almost $1.29, before falling back in later trading following comments by Mr Jean-Claude Trichet, the president of the European Central Bank.
He said that "excessive volatility" and "brutal moves" in currency levels were not appropriate. However, there was no sign of any agreement to address the issue in a co-ordinated fashion from the central bankers of the main industrial countries, who met yesterday in Basle.
Some weakening in the US dollar's value in recent months was appropriate, given the size of the US current account balance of payments deficit. However, as the International Monetary Fund recently warned, there are risks to the world economy - and particularly financial markets - if a dollar collapse were to take place.
The rise in value of the euro poses a threat to European growth, as it will hit exporters. But a weaker dollar suits the Bush administration, as it boosts exports and growth in an election year. For this reason, the US is unlikely to back any action to try to support the dollar's value. It appears unlikely, therefore, that a united front on the issue will emerge from the meeting of finance ministers of the G7 in Florida next month.
The US current account deficit mainly relates to a huge excess of imports to the US over the exports it sends to foreign markets. In part, this reflects the overhang of the boom years, when consumers and businesses built up heavy debts and the US borrowed to finance consumption. However, it also reflects low growth in many international markets outside the US, which in turn has restricted demand for US exports.
In the short term, international central banks face the day-to-day task of managing volatile currencies. There are also clearly fundamental imbalances behind the dollar's decline. To address these would first require some sign that the Bush administration has a long-term strategy to address its own budget deficit. This is unlikely to happen until after November's presidential election. However, the more the US relies on foreign capital to finance the excess of expenditure over incomes in its economy, the more vulnerable its markets - and its currency - become to any decline in investor confidence.
The other main trading blocs also need to look at how they can best encourage economic growth, to try to remove the huge reliance of recent years on the US. In particular, euro-zone policymakers have much to do. The case for another ECB interest rate cut is growing stronger, even if this would be unwelcome from the viewpoint of the Irish housing market. Europe needs to sort out its fiscal rule book in a way which leads to sustainable - but not contractionary - budgetary policy. And moves to push forward the so-called Lisbon Agenda of boosting competitiveness in EU economies through economic reform are long overdue.