The US dollar is “our currency, but your problem” was the famous putdown of John Connally, President Nixon's Treasury Secretary in the early Seventies, as he rudely rebuffed European appeals over the dollar's value.

Washington has been more diplomatic during the dollar's recent fall, but its basic attitude to Europe's growing discomfort at the eurozone's declining competitiveness has been little different.

While Hank Paulson, the present Treasury Secretary, has continued to mouth the standard mantras of a strong dollar policy, Washington has pursued an unspoken strategy of benign neglect. The US stance has been entirely understandable. The dollar needed to fall if the huge global imbalances, driven by America's vast current account deficit, were to be unwound.

More immediately, the boost to American exports from a cheaper currency has been a welcome prop to growth as the US economy has stalled.

Yet this stance was abruptly junked yesterday by Ben Bernanke, the Federal Reserve Chairman. The apparent watershed in US policy was all the more striking in that it came from the Fed chief, and not Mr Paulson, a distinction that was not lost on the markets.

Mr Bernanke's intervention looks well judged for several reasons.

First, there is a lingering risk that the dollar's slide runs out of control and turns into a rout. Were that to happen, the consquences would be disastrous not just for America, but for the world, triggering an inevitable crash in bond markets.

The dangers of such a grave outcome are heightened by the threat of inflation, which provides the second strong rationale for yesterday's shift. While a weaker dollar has helped to underpin growth via exports, now it is hampering both the Fed's efforts to quell inflation and to sustain economic activity.

America's inflation is stoked as the falling dollar drives up its import bills, further imperilling fragile confidence in the currency.

Rising market anxieties over inflation also threaten to drive up the bond yields that determine actual interest rates for businesses and households, reinforcing the credit crunch and undercutting the Fed's loosening of official rates.

Finally, the dollar's losses are adding to the toll both in the United States and globally from soaring oil prices, fuelling the upward pressure on the cost of crude on world markets. For the Fed, this means not only yet more energy inflation but also, at the same time, a further drag on growth as the costs hit American consumers in the pocket.

This time, the dollar's decline has become America's problem, too. Mr Bernanke has made the right move, not only for the United States but for its friends in Europe.

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