The latest fall in value of the US dollar highlights the impact of currency market trends on the real economy. A weaker dollar threatens to slow euro-zone growth next year by damaging export performance. For the Irish economy, it makes life harder for firms exporting to the US, who have seen the euro rise by some 17 per cent against the dollar this year.
The euro has also risen against sterling, the other key currency from the viewpoint of Irish industry, though the increase has been less dramatic with the rate moving from 65p sterling at the start of the year to just over 70p now.
The weakness of the US currency relates primarily to the growing deficit on the current account of the US balance of payments. This deficit, primarily caused by an excess of US imports over exports, has to be financed by large inflows of capital into US financial markets. Concerns that foreign investors may not be willing to continue pouring money in at current interest rate levels have undermined the dollar, despite signs of improvement in the US economy.
In recent weeks the dollar has gained little from a succession of generally strong US economic figures, which suggest that recovery is now firmly under way in the world's biggest economy. However, Friday's US employment report, which showed that disappointingly few jobs were created in November, was enough to prompt heavy selling of the currency, taking the euro to a new high of over $1.22 yesterday. Further volatile swings are likely in thin pre-Christmas trading and many analysts believe that the dollar could fall further in the weeks ahead.
A weak dollar will intensify the competitive squeeze on European - and Irish - exporting industry. The main concern would be a further sharp fall in the dollar's view, which could destabilise international financial markets and prove a jolting shock for exporters.
Worryingly, the view is growing in financial markets that the Bush administration, keen to give US exporters a boost before next year's presidential election, is content to see the dollar slide, despite its public support for a "strong currency." Nor are there any signs that Mr Bush will do anything to rein in the current account deficit, or the deficit in the federal budget.
Against this background, the main hope for dollar support comes from the Federal Reserve Board, the US central bank. It has kept interest rates at very low levels to spur recovery and it now appears that this medicine - together with tax cuts - is working.
There is now a strong argument for the Fed to start preparing the ground to increase US interest rates early in 2004. Such an indication might provide little support in the short term, but over the coming months prospects of higher rates could put a floor under the US currency. For this reason close attention will be paid to the statement after tonight's meeting of the Fed's key policy committee, which could decide to point the way to higher borrowing costs sooner rather than later in 2004.