The euro appears to have begun its long-expected rebound against the dollar, although, as the jitters earlier this week showed, nothing can be taken for granted.

If there is one thing the currency's revival has demonstrated, it is the wisdom of central bankers and senior government officials keeping their thoughts to themselves.

Until the change of administration, US policy makers under president Clinton hardly put a foot wrong when it came to dollar policy. But new US Treasury Secretary Paul O'Neill and his president George W Bush both made the fundamental error of thinking aloud when it came to the currency.

To counteract this, US officials have spent every available opportunity over the summer expounding on their strong dollar policy.

The net result, as one market watcher put it, was the markets began to refocus on the old arguments that had supported the dollar and, realising they no longer existed, attacked the currency.

The contrast with the European Central Bank (ECB) is marked. Until recently, ECB president Mr Wim Duisenberg, vice-president Mr Christian Noyer and a long list of other officials attempted non-stop to talk up the currency to no avail.

They were of course considerably hampered by the president of the euro group of finance ministers Mr Didier Reynders, who effectively put back the course of interest rate cuts by loudly insisting on their necessity before attending the crucial ECB meeting.

But the Europeans have taken a long summer holiday and no-one has been saying anything at all about the currency. The result is the resurgent currency for which they have been praying for almost two-and-a-half years.

Of course, there are other reasons for the currency turnabout, most importantly the lack of indicators pointing towards a US recovery. The International Monetary Fund commentary damaged to the assumption that a turnaround could be on the horizon but the real nail in the coffin was probably the Federal Reserve's Beige Book. It gave probably the most bleak reading of the economy anyone thought possible.

Thereafter, analysts had no excuse not to cut back growth forecasts and push back their predictions on the timing of any recovery.

This is, of course, vitally important to the Republic. Most forecasts here, which see only small scale damage from the US downturn, rely on the US recovering, if not in the last few months of this year, at least in the first few months of 2002. If that does not happen all bets will be off, as the Economic and Social Research Institute warned at the time of publication of its summer commentary .

The other problem is that, simply because the US's problems are becoming the focus of the currency markets, there is no certainty that Europe will do very well. The ECB has long insisted that the slowdown in the US will only have a limited impact. This is perhaps one of the reason rate cuts have been so long in coming.

After all, earlier and bigger cuts would only have given ammunition to those who would accuse the ECB of having being almost negligent in assessing the risks to the European economy from the US slowdown.

Now, the assumption is that there is a possibility that the European economy will begin to recover. It may not grow as quickly as the 2 per cent plus forecast of the European Commission but it may not be far off it.

There is now optimism that German growth stabilised in the second quarter of the year and that small signs of life in its construction sector may be enough to stave off any negative growth figures. The rest of the euro zone is of course doing markedly better.

This is the best that the Republic can hope for just as recession in the home markets combined with problems in the US is the worst possible combination. The old argument that US firms may stay in the Republic even as they close in the US has at least a slightly better probability of happening if demand is recovering in Europe.

This boost will be needed if the euro continues to appreciate. Over the past two years, Irish exporters have found themselves in a very fortunate competitive position vis-a-vis their competitors in Britain in particular. The low value of the euro against the dollar and sterling has given euro-zone exporters something of a free ride.

Of course, the currency is a long way off parity but that day may come. Firms that have also been hit by a downturn in demand and have allowed costs to rise, may suffer the consequences.