China's tinkering with interest rates may have grabbed the headlines last week but as the United States presidential election reaches its climax, the US dollar will resume centre stage on global financial markets. Whoever is the next president, one thing is certain: he will inherit one of the largest overdrafts in the nation's history. The US budget deficit is now approaching 5 per cent of gross domestic product; the figure for the trade deficit is even uglier, running at 5.4 per cent of national output. These spiralling imbalances point to further weakness in the US dollar and potentially even higher US interest rates. The dollar's decline has been unfolding for almost three years, with the euro gaining 45 per cent in that period. As economists' unease over President George W. Bush's deficits has become more vocal, some - such as investment guru Warren Buffet - have done more than voice disquiet, aggressively diversifying out of US dollars for much of this year. While an enfeebled dollar may be America's problem, it also poses challenges for much of Asia through a series of real or de facto currency pegs. How much further will the decline go? Deutsche Asset Management chief investment officer for Asia-Pacific Andrew Fay this week warned there was still a dollar crisis risk. When is hard to say. The tipping point will come when foreigners decide they no longer want to hold US dollar assets, triggering a destabilising payments crisis and a disorderly fall in the greenback. US interest rates may well need to rise faster than expected to help attract capital. To put the present situation in perspective, Mr Fay presented a chart of US budget deficits as a percentage of GDP over several election cycles. It shows a huge swing from surplus to deficit in the past four years and indicates we are already approaching an extreme point by historical standards. The typical electoral cycle offers some explanation. In the lead-up to the election we see investment priming, then belt tightening kicks in. At some point debt must be paid back. It remains unclear if Mr Bush is willing or able to alter course if he is re-elected. Last week it was reported a further US$70 billion expenditure on Iraq was planned. Further dollar weakness might force his administration to pay more attention to deficits. Deficit reduction has been a prominent part of Democratic contender John Kerry's campaign. Whoever wins, it is sure to determine the value of the currency in your pocket.