The dollar continues to crumble under the weight of perpetual negative financial economic news. Real estate and lending markets still face the potential for worsening conditions. The Fed’s assistance in bailing out Bear Stearns indicates it sees a need for strong credit market intervention on top of further rate cuts. The majority of economic forecasters recently surveyed believe the US economy is in the midst of a recession that will be confirmed by first quarter growth data.
The dollar weakness is most noticeable by the almost daily record rises in oil, gas, and gold against the dollar. Oil climbed over $110 in mid-March and seems well established above $100 per barrel for the time being. Gold is hovering around $1,000, near its all time high that keeps growing. Gasoline prices, which had held steady for some time in spite of rising oil, also topped national average records. Fuel currently rests about $3.30 per barrel. Expectations are that gas could reach $3.50, or even $4.00, during this summer’s busy driving season.
Dollar weakness is not all bad for Americans, but it is definitely seen as a sign of economic weakness in its present condition. Although consumers are seeing high prices on gas, foods, electronics, and other products, exporters are benefiting from increased global demand for cheaper American goods. Companies that operate globally definitely have an advantage when the US economy is stale.
Foreign investment in travel is also helpful to provide some needed cash flow and business capital to struggling companies. Many travelers have targeted warm American climates for vacations to take advantage of cheap lodging and shopping opportunities based on their currency’s relative strength.
The dollar is reaching prices against major world currencies that were unimaginable less than a year ago. The dollar just dropped below one hundred yen and one Swiss franc in mid-March, after reaching a value of 125 yen and 1.25 francs, respectively, during the summer of 2007. This is an incredible fall.
The dollar also faces ongoing pressure from European currencies. The Euro is relentless as it nears $1.60. The pound has struggled a bit, relative to its counterpart, as some of the US credit and housing concerns have entered the British markets. The pound is currently sitting right around $2.00. This is still a historic high, but about six pips off the record from late last year.
Americans are much more concerned with the current or pending recession and the ongoing economic challenges lead by housing and credit problems. They sometimes look at dollar weakness as an afterthought compared with other problems. This is because consumers do not always realize the immediate impact of dollar value changes as they are usually gradual.
Americans do seem to be a bit more aware of the current dollar slide as its depth and speed has created more dramatic market effects than normal. Food products like milk, cheese, and fruits are at relatively high prices. Many have had to be more budget-conscious when shopping for every day items like groceries.
As sad as the current dollar looks, at some point, the economy will improve. The Fed and government seem convicted to make that happen no matter what. The Fed is still aggressive with rate cuts, tax rebates will be here in May, and the Fed and government are both looking for any opportunity to provide meaningful support to struggling financial services companies.
At some point in the very near future, the dollar will regain its strong green color and reestablish itself as a valued world currency. In spite of benefits to foreigners in trade with American companies, much of the world needs a strong US economy and strong dollar to improve global consumer confidence.