Weak Dollar's Impact on Wall Street, Consumers ; It's Helping US Exports, but Making Travel Abroad and Imported Goods More Expensive
Ron Scherer writer of The Christian Science Monitor, The Christian Science Monitor
The United States has a strong military and its economy is growing faster than most of its trading partners. But, its currency, the greenback, is getting mauled.
Over the past year, the dollar is down almost 22 percent compared to the euro and 12 percent versus the Japanese yen. Economists are most concerned about the rate of decline - the dollar started the New Year by dropping a full percent.
Such a steep drop, rather than a gradual decline, could prompt global investors to lose their faith in US financial markets. This could make financing the nation's the budget deficit more costly, and short circuit the robust rally on Wall Street.
It might also cause thousands of imports - from Dutch cheese to Japanese automobiles - to move out of many consumers' price range.
"There is a concern the dollar could fall completely out of bed," says Jay Bryson, an international economist at Wachovia Corporation in Charlotte.
There is no indication yet that the falling dollar is causing any serious problems. The stock market has risen nearly 25 percent over the past year and has started the new year off on an uptrend.
Bond-market analysts don't see any signs that foreign investors are jettisoning US bonds. And big holders of US dollars, such as members of OPEC, are grumbling but not demanding payment in other currencies.
US officials maintain there is no need for alarm. On Wednesday, US Treasury Secretary John Snow reiterated that the US policy was for a strong dollar. "A strong dollar is in US interest," he told a business group. Recently, Federal Reserve governor Ben Bernanke said he was not worried about the falling dollar since it was less severe against a wider basket of currencies, and the falling dollar had not rung any inflation alarm bells.
But not everyone is as optimistic. On Wednesday, the International Monetary Fund (IMF) issued a report that predicted a further decline in the value of the dollar because of the large trade deficit.
"Although the dollar's adjustment could occur gradually over an extended period, the possible global risks of a disorderly exchange rate adjustment, especially to financial markets, cannot be ignored," said the report. …