For what seemed like half a year investors hated the US dollar. They hated the slowdown in US growth, they hated the advent of a second round of quantitative easing (“printing money” as the naysayers describe it) and they had little interest in the benefits of a safe-haven currency as long as China, Germany, Brazil, Australia and the rest of them were reporting economic progress. Once the problems of Greece’s fiscal deficit had been sorted out by a fusillade of EU and International Monetary Fund cash, back in May, they loved the euro.
That picture has now been reversed. It is impractical for investors to hate the world’s two biggest currencies at the same time; where else would they put their money? So they have fallen back in love with the dollar because they don’t like the euro. They don’t like the way the peripheral states are falling like ninepins to the curse of fiscal improbity. Greece has had to be rescued from bankruptcy and Ireland is following the same path. Lined up in Ireland’s wake are Portugal (almost certainly) and Spain, which would be a much bigger headache for the EU stability fund. The worst case would be if Belgium and Italy were to end up in the same boat.
Compared to its cross-Channel (and Irish Sea) neighbours, Britain is doing relatively well. Four successive quarters of growth have added 2.8% to the size of the UK economy and the number of job-seekers actually fell in October, contrary to predictions. It is unlikely that progress will continue at that level but the prospect of a second recessionary dip now looks faint. Unless and until Euroland can get its budgetary act together it is likely that the dollar will lead the way, followed by the pound and trailed in a distant third place by the euro. Of course, miracles can happen….