The dollar: The weak dollar dominates world markets. As the dollar revisits its 2008 ultra-lows - plumbing depths rare in living memory — Brent crude oil is at $124 per barrel. Gold, silver, the Australian dollar and countless emerging economy currencies are at record highs and global stocks are buoyant. All these things are related. As the Fed prints dollars and keeps rates at barely visible levels, traders have gone short the currency and speculated in other currencies, commodities and markets. But when the dollar bounces back — as it will — screens around the globe are going to flash red.
The big question is when dollar weakness - and the dollar carry trade - will end. Will the dollar fall to $1.60 against the euro, or go still lower? Will oil reach $150 per barrel, or $250? Can gold go to $2,000, or more?
Were the Fed to start talking of a third round of quantitative easing, there is a chance that such prices would materialise. Last week Ben Bernanke, the Fed chairman, did no more than hint that rate rises would be distant but it was enough to drive the dollar down and gold, silver and speculating pirates into celebration.
But one or more of several factors will eventually cause a dollar rally. A serious global political or economic shock might push the dollar up - just as risks associated with the killing of Osama bin Laden have provoked a small rise. But the much more likely reason for a dollar revival is not bad news but good: a revival in the US economy and monetary normality.
Growth in Q1 disappointed but monthly surveys suggest recovery, despite the continuing drag created by housing woes. There are also signs that global inflation is feeding back into the United States. Bernanke would only need to mutter a word on the subject of a rate rise, and the dollar could rally significantly.
That would mean global markets would have to digest a swift reversal of the dollar carry trade. Gold, silver and many currencies could plunge, and so would oil and other commodity prices. Many emerging economies would find commodity boom time has ended.
How far could the dollar rise? A 27 per cent rise would see it do no more than get back to its 25-year trade-weighted average. But the key point is that markets have been thriving on worsening dollar weakness. Even a modest reversal of its falling trend will end the carry trade and burst bubbles around the globe.