The dollar has finally begun its long overdue correction. Its recent decline is just a prelude to the much more substantial fall needed to shrink the US current account deficit, running at a nearly $800bn (£393bn) annual rate, about 6 per cent of gross domestic product.

If the dollar remained at its current level, the US trade deficit would continue to expand because Americans respond to rising incomes by increasing imports more rapidly than foreign buyers raise their imports from the US. Although a faster growth rate in the rest of the world would raise US exports and reduce the US trade deficit, experience shows that even substantially faster foreign growth would have only a very small impact. A lower dollar has to do most of the work of reducing the global trade imbalance.