Does reduction of the US current account deficit require or does it cause a fall in the dollar?

The two possible answers lead to opposite conclusions about the impact on economic policy both in the US and the rest of the world. If you believe the dollar needs to fall for the US current account deficit to adjust - the common view in financial markets - your argument is comforting for the US and uncomfortable for the Europeans. A falling dollar leads to a deterioration of the US terms of trade - the prices of US goods relative to foreign prices. This would reduce US imports and raise exports.