Q&A: Why the dollar's in decline
 

http://news.bbc.co.uk/1/hi/business/3303549.stm

The dollar has hit a series of historic lows against just about every currency. But the reasons behind the falls are not obvious. BBC News Online explains.

How low has the dollar fallen?

It's breaking all sorts of records.

The pound is way out in front, and is currently at an 11-year high.

The euro boasts an all-time high, but it has only existed since 1999; elsewhere in Europe, the Swiss franc is at its strongest since 1996, and the Swedish krona and Norwegian kronor have hit post-1997 highs.

The yen, meanwhile, held in check by Japan's central bank, can only manage a 41-month high, touching levels last seen in late 2000.

The euro, the currency that everyone seems to be watching most closely, has now gained 16.5% against the dollar this year alone, and fully 45% since its historic low of 84 US cents in July 2001.

What's behind all this?

The US economy is pretty perky at the moment, growing by more than 8% at the last count.

But this has produced a curious effect.

As US growth outpaces the global average, its consumers pull in ever more imports, and the country needs to borrow to finance the trade and current-account deficits that result.

Globally, goods and services flow into the US, while cash flows out, producing a constant pressure on the value of the greenback.

US interest rates are at a 45-year low of 1%, scarcely a great lure for the international flows of capital that govern exchange rates.

And Washington's once-ironclad commitment to a strong dollar seems to have waned, perhaps because politicians realise that America stands to gain from having a weaker currency.

What have the effects been?

The value of the dollar plays an absolutely central role in the global economy.

Oddly perhaps, the US suffers least of all. Although its rampant consumers will find it harder to slake their thirst for imports, its companies will become far more competitive, reaping profits and boosting jobs.

Meanwhile exporters in Europe and Asia have found it harder to sell their products into the US market.

American tourists, the free-spending mainstay of many a European or Asian resort, will venture out in far smaller numbers this year.

International companies will suffer uncertainty and complicated book-keeping.

And because commodities such as metals and crops are traded in dollars, their prices may have to rise; gold and oil have both boomed as the dollar fell.

Is there an upside?

Not much of one.

Shopping in New York may be a more affordable option - although not necessarily, if you are planning to buy Japanese-made electronics or European toys.

More broadly, companies will find it cheaper to invest in the US.

Shares might be a worrying purchase for some right now, but a big corporate acquisition in the US could be reasonable value under the right conditions.

Can the dollar go much lower?

Most people seem to think so.

The general consensus is that the pressure on the dollar will persist: although the declining dollar has hit the headlines this week, the factors behind it are long-term, structural issues that are not going to go away.

In time, of course, Europe and Japan - the two main zones of slow economic growth - will pick up speed, and the imbalance between the US and the rest of the world could start to be corrected.

But that could take years.

In the meantime, the question must be whether rich countries will take action to prop up the dollar, as they did in 2000 in support of the euro.

Options this time around are limited, however: interest rates in Europe and especially Japan are unlikely to fall much further, and there does not generally seem to be the sort of global consensus needed to coordinate efforts.

The dollar seems likely to fall: betting just how far is one of the best ways imaginable to lose even more money.

The reason is OBVIOUS ...

W :mad:

GWB Can go blow a goat and fuck off... :mad: :ak47:

It'sso funny how everybody thinks that the weak US dollar is a BAD thing. I'm glad someone finally posted something a little more balanced.:thumbsup

If you're in the US - :thumbsup
If you're not in the US - :feels-hot

If your in the USA its great as you should be selling stuff to the UK with ease.

I have said before that you should be aiming to get UK members on your site as its cheap for those in the UK at the moment.

Its those webmasters that are not in the US (i.e. UK, who sell in US dollars) as they are getting almost half what they did two years ago, but that said, they should find more people join there sites due to the low costs. Its swings and roundabouts.

I understand your feelings, but I was refering to people from the EU that point to the weak dollar as a sign that GWB was screwing up the US economy, and we were in such trouble compared to the EU, when in fact that was certainly NOT the case.:2 cents:

makes me wanna move to hawaii.

Economics has very little to do with it - low value dollar = more exports = more money for corporations that have GWB in their pockets = more employment = more votes for GWB at the next election...

I also heard that it was useful for US to lower the value of the dollar as its easer to pay of the big debts the US has.

Those aren't records nor are they historic lows - other against the Euro which has only been around a few years. Even there, you can look at one of the old euro-basket indexes and see it is no more than a decade long low . The dollar is the lowest it's been in a few years - less then a decade though.

The dollar index is in about the place today as at the beginning of 1997. It was lower in 1996 than it is today. Much like the very high rise of the dollar in the mid-1980s and it's subsequent return to normal levels, it makes just as much sense to ask why the dollar rose in the 1990s as much as to ask why it is falling now.

yep GWB called' em all up and told them lower the dam $$
:helpme

OK, so by your reasoning, it's better if the economy goes in the tank, companies are losing money,(and believe me, they have BOTH parties in their pockets!), laying off more people, inflation rising, interest rates rising, etc...basically shoot ourselves in the foot.......just so GWB can lose the election?:eek7

Where the hell did I say that - are you reading the same thread? I'm making an observation, not a judgement.

Apart from GWB being an arsehole

No judgement though!:1orglaugh

Personally, as a UK webmaster, it is a bit sad to see a <insert percentage here> drop in income. It wouldn't be such a problem if there were some sponsors or CC processors willing to process in Sterling. Sadly that isn't the case, at least not at the top end. Possibly that might change, I've seen pressure buliding for CC processors in particular to get off their arses and start dealing in more currencies. Verotel (Euros) is the only one I know of to date (of any importance). Still waiting for CCBillEU to get it's act together and attempt to serve the EU market. I signed up for Verotel as a backup bout three months ago. I've decided if the dollar drops below 2 to the pound, it's bye bye CCBillEU and hello Euro pricing with Verotel.

The only downside to the low dollar for Americans is one that was kinda passed over very briefly in the BBC artcle, but may have quite bad long term affects, and that's how cheap it is for non-US companies to buy US companies right now. It's too early for this to have *really* started yet, but in a year or so, I predict a lot of US companies will be snapped up at bargain prices :) In the long term that's great for us Brits :)