Strange things can happen in thin summer markets. Yet, if the greenback's recent weakness is merely a seasonal chimera, that leaves a lot of dollar bills lying on the sidewalk.

Given that the dollar hit a 15-year high at the start of July, its 4 per cent fall since on a trade-weighted basis is scarcely a rout. Indeed, the dollar remains overvalued on conventional measures. A sharp fall in the dollar is a risk, not least because of the size of the current account deficit. The implications for inflation could limit the Federal Reserve's room for manoeuvre. But given the weak outlook for Japan and the eurozone, a rout does not look likely.

European manufacturers would not be pleased with a sustained depreciation. But with the euro helping to contain inflation, rather than the reverse, the European Central Bank might feel finally ready to cut interest rates. A stronger euro, and lower energy prices, should boost consumer spending. The last thing the Japanese economy needs is a stronger yen, which raises the possibility of intervention. What is not clear is how much of the yen's recent strength reflects repatriation ahead of the financial half-year.

US exporters and companies that derive a large chunk of their earnings from foreign operations would benefit from a sustained dollar depreciation. But of far greater significance is the most reasonable explanation for the dollar's weakness: changing expectations on the timing and the strength of the economic recovery and downgraded expectations for the trend growth rate, and so returns on assets. That is notably different from December's short-lived dollar dip.

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