In theory boosting labour productivity is the single most important way to boost GDP in the medium run. To boost labour productivity we do need to see bold policies and investment (both public and private sector). Investment should cover investment in workers, capital and R&D. Bold policies should be designed to improve labour mobility across the county.

The main reason for the fall in the euro was expectations that the US would grow much faster than the euro area, given the war in Ukraine. Euro area: large negative terms of trade shock from the war in Ukraine. It intensified in September, when Russian gas flows through the Nord Stream 1 pipeline ended. Fears grew that lack of gas would bring European industry to its knees and the block would suffer recession. USA: as a net exporter of oil and gas, the US experienced a positive terms of trade shock – that not many people talk about. But it is important. It has made the US richer. The US also experienced a strong post-Covid recovery supported by strong household balance sheets built up from pandemic stimulus payments, and a historically tight labour market.  High and rising inflation in both regions led interest rates to rise in both regions through 2022. But the Fed started earlier and hiked aggressively. Monetary policy differentials did also contribute to dollar attractiveness.