For the first time in months, investors are worrying about prospects in the U.S. and euro zone at the same time. Where, in response to this double trouble, can currency investors go?

Fears about the global economy have tended, in the past, to send investors fleeing into the greenback.

However, this time it may be different because the U.S. has its own homegrown crisis: the fear that the fiscal cliff, an automatic and abrupt fall in government spending and rise in tax, will not be eliminated before it becomes reality in January.

“In any rational world, a U.S.-specific crisis would be bad news for the U.S. dollar,” says HSBC. It acknowledges that, at the moment at least, investors are not choosing to inhabit this rational world. Anxiety about the fiscal cliff has pushed up the dollar because its refuge status is, in the words of HSBC, “truly embedded in the psyche of the market.” However, HSBC warns that further safe-haven buying in reaction to the fiscal cliff is “misguided,” and therefore bound to run out of steam. As a result, “the reaction function to the fiscal cliff is most likely to be a rally in the U.S. dollar followed by an aggressive and swift fall” — making it an unpromising haven, since by their very nature, haven assets do not exhibit violent volatility that may catch out investors.

....