There is no mystery in this development. All six GCC states peg their currencies to the US dollar. Since the greenback has fallen by about one quarter since the end of 2002, one euro, and to a lesser extent a yen and a pound, is going a lot further than it did a year ago.

The trade in currencies is comfortably the largest finance market in the world, involving thousands of participants from the New York Federal Reserve to moneychangers in Dubai dealing in a global electronic casino that never shuts. Despite its size and complexity, the market is often easily understood. The present dollar weakness began with the appointment of John Snow as US Treasury Secretary in January 2003. American policy since then has been strikingly expansionary. The dollar devaluation masterminded by Snow aims to ensure the US fiscal impetus authorised by President Bush is converted quickly into strong real growth.

Snow's approach was vividly declared after the group of seven (G7) meeting in Dubai last September. He said he favoured 'market-based' exchange rates. The markets rightly interpreted his words as signalling Snow wanted to see the dollar decline a lot more. And so it has come to pass: on 12 February, a dollar was worth just Eur 78; six months ago, it was trading at not much less than Eur 1.

The Snow-Bush programme has delivered the biggest stimulus to the US economy since 1945, to the delight of American business. A big rise in jobs is expected in 2004. The impetus is political. Bush is desperate to avoid the fate of his father, a victor in a Middle East war who nevertheless lost the 1992 presidential poll to the inexperienced and unknown Bill Clinton because the economy was in a mess.

The implications for the GCC and most of the Middle East are profound. The collapse in the dollar has more than offset the 14 per cent rise in the OPEC crude basket price in 2003. OPEC's unexpected decision this month to reduce production is at least partly explained by the desire to recover lost purchasing power (see Cover Story, pages 4-5).

At MEED's Qatar conference in January, the issue provoked a remarkable public debate between Qatari Energy & Industry Minister Abdullah bin Hamad al-Attiya and one of his senior advisers, who called for dollar oil pricing to end. Al-Attiya fended off the suggestion, declaring it premature and impractical. The principal reason why OPEC has so far rejected the option, however, is that it would be interpreted in the US as a declaration of economic war. The oil trade is the world's largest commodity market. Keeping crude priced in dollars lifts demand for the currency and allows the US to pursue more inflationary policies than it would if oil was priced in, say, euros.

Foreign exchange markets are deeply political, particularly when it comes to the fate of the currencies of the major powers. So what do political trends suggest will happen to the value of the dollar in 2004?

History indicates that presidents at a time of economic boom win elections, particularly when the incumbent is a southerner facing, as it looks like he will, a liberal from Massachusetts. Bush should be confident and, therefore, under less pressure to please the voters. Deficit reduction and action to halt the dollar slide would normally be on the agenda. In fact, opinion polls show that, if an election were held today, Bush would lose to John Kerry, who is unexpectedly winning Democratic primaries across the US. The Iraq factor is overturning the conventional wisdom and could produce a close result in November.

This means that the right economic medicine will come late in the year, possibly not before Bush is returned or replaced. The dollar has yet more ground to lose and significant rate rises may not be sanctioned until the summer or later.

So the party will continue in the US, and for European visitors to the Gulf, for several months more. Enjoy it while you can. The hangover, which seems due in 2005, could be painful.