LONDON (Reuters) - The dollar may hang by the slender thread of the US recovery, but this is probably enough to make it the major currency of choice.

It is not so much that the dollar is strong, but that the case for its major peers - the euro, pound and yen - is so weak.

The euro zone faces tremendous pressure; Greece may, just, have been rescued, but it, along with Portugal, Spain, Ireland and Italy are unleashing powerful deflationary forces making quantitative easing by the European Central Bank (ECB) a real possibility. Further contagion within the euro zone is also a strong possibility, meaning market risk will compound fundamental risk.

Even when the result of Britain's election is clear, the path to a better fiscal picture is not, and when it comes, it will deal a blow to the economy.

Japan, as for so long, is not really going anywhere and doing so in an erratic fashion, again the implication being that the Bank of Japan will keep rates ultra-low.

The United States, then, is the pick of a bad bunch.

"The dollar is the best-looking horse in the glue derby" said Jan Randolph, director of sovereign risk at IHS Global Insight, speaking at a Euromoney foreign exchange conference on Tuesday.

US manufacturing expanded at its fastest pace in nearly six years in April, though there is some question about how much is actual final demand and how much inventory restocking. Consumers too seem to be doing their thing again; they increased spending for the sixth straight month in April, though they did it courtesy of government transfers and a declining savings rate. While there are questions about the sustainability of the US recovery, it is also true the Federal Reserve is a lot more likely than any of its big-time peers to start raising rates any time soon, providing further support for the dollar.

In fact, if anything, what is striking is what unanimity there seems to be about currencies among investors and strategists. Everyone, seemingly, sees the dollar getting stronger in the coming year, though many expect there to be considerably more volatility than in the past 12 months. This unanimity could mean that an unexpected event might see a strong reversal.

And really, if you stop to consider the major alternatives, it is easy to see why the dollar is so popular. Thus far this year it has gained more than 10 percent against the euro, six percent against the pound and five percent versus the yen.

Events now unfolding in the euro zone are deeply deflationary. Consumers in the weaker states will be buying less and in some places outright recession could be a feature for years. To fight this the euro zone is going to need a much weaker currency, and even if an engineered weakening does not happen, rates will stay low and periodic political and fiscal crisis will exert pressure on the euro for a long time.

It is not out of the question for the ECB to begin buying up debt of weaker issuers such as Greece, or engage in other forms of quantitative easing. Remember too, if this happens it is not going to be happening in response to a generalized global crisis, as when many banks employed QE in 2009, it will be Europe acting for regional reasons. This would be highly negative for the euro, good policy though it may be.

Continued low rates and more quantitative easing are a strong possibility in Britain too. Any attempt to improve the budget outlook will hurt economic activity and, with rates pinned at very low levels, a deliberate but unspoken policy of allowing sterling to weaken may emerge.

In fact, counting Japan, we could face a world in which the central banks behind all major currencies except the dollar are creating money as a means of supporting their economies. Besides making the dollar something of a one-way trade, you have to wonder when a weak euro, for example, joins the weak Chinese yuan as a political issue.

But why bet on the old debt-laden major currencies at all?

"You probably want to, as a core strategy, sell all four of those currencies and buy the currencies of the countries which aren't indebted," said Bilal Hafeez, a currency strategist at Deutsche Bank.

Certainly there are places like Australia and Canada which are attractive in that they have both credible central banks and clean balance sheets.

Diversifying away from the sclerotic major currencies also means buying Asia and emerging markets, where debt generally is manageable, demographics are positive and growth looks strong.

That is going to be the story of not the next year but the next decade.