Everybody, some more wittingly than others, is playing the game of competitive devaluation. Picking the winner could be a route to profits.

If the eurozone avoids further squalls and there is no big shift in the commodity market, then the call is fairly straightforward. The Federal Reserve does not want the dollar to rise, whatever it says, and has demonstrated the ability to push it down. Other central banks cannot do this – as witnessed by unsuccessful interventions by the central banks of Japan and Switzerland, and various ineffective attempts at capital controls. Meanwhile, the European Central Bank prefers to fight inflation and is host to Germany, the western world’s strongest economy in 2010, for which higher rates are appropriate.

If the world economy improves more than anyone expected, investors will be comfortable staying out of the dollar. In “risk-on” phases, money goes elsewhere. If it lapses into deflation, again the dollar should suffer more.