Just one complication is that the financial markets react not so much to the present gap between countries' interest rates, but more to how they expect that gap will change in coming months. Before it had fully recovered from the effect of the Asian crisis, our dollar began falling in late January. The main reason for that fall seems to be the currency market's belief that interest rates in the US and elsewhere will rise by a lot more than ours do this year. The best you can say is that, had it not done so, our dollar may have fallen by more than it did. But, from this morning, the US has raised its official rate again, reopening the gap.
Life gets a lot tougher for our central bankers.
They've already raised our interest rates by as much as is needed for purely domestic purposes. If they try to defend our dollar by following the Americans up, they risk causing our economy to slow unnecessarily, halting our progress in reducing unemployment. So, while Greenspan goes on raising US interest rates to cool an overheating American economy, our Reserve must choose between lifting our rates too high or accepting a dollar that's too low. It may eventually have to raise rates a little further, but I suspect it will decide to take its chances on the dollar. America's sharemarket bubble still has a lot of air.