MAKING SENSE OF A WEAK DOLLAR
Weak or strong. Which is better? If the question is about the American dollar, the answer depends on whom you ask.
The dollar has been weakening against several major currencies. One euro is currently worth about one dollar forty cents. A British pound is worth over two dollars.
Many widely traded products are bought and sold in dollars. These commodities include oil, soybeans and metals like copper. A weak dollar can mean a better deal for foreign buyers. But for oil producers and countries that tie the value of their own money to the dollar, weakness reduces their purchasing power.
A weak dollar, though, may help reduce the American trade deficit because it makes American exports less costly. But in the United States it can raise the cost of imports. An exception is imports from China.
The Chinese government sets the value of the yuan on foreign exchanges. This year the yuan has increased less than four percent against the weakening dollar. This has kept the prices of Chinese imports low.
In other cases, however, a weak dollar hurts American businesses that deal in imported goods. They may have to raise prices or sacrifice profits. Many companies do not want to raise their prices for fear that they may lose market share.
The Federal Reserve has said that inflation remains under control. But the Fed says it is prepared to take action if inflationary pressures increase.
Last month the central bank cut short-term interest rates by half a point. It did so to help keep problems in the housing and credit markets from harming the wider economy and causing a recession.
But some economic worries appeared to ease after the latest jobs report last Friday. The Labor Department said employment increased by one hundred ten thousand jobs in September. Also, new numbers for August showed a gain of close to ninety thousand jobs.
The department had earlier reported that the economy lost four thousand jobs in August, the first report of job losses in four years.
Still, critics warn of dangers from a weaker dollar and lower interest rates, which reduce the returns on dollar-based investments. A New York Times commentary, for example, said dollar weakness is rooted in the borrow-and-spend behavior of the government and the public. It said foreign lenders will be less and less likely to want to invest in dollars, and that will only make things a lot worse.