Making Money

The weak U.S. dollar continues to deteriorate, said Rachel Beck in the Associated Press. It recently reached a record low against the euro and parity with the Canadian dollar for the first time since 1976. The Federal Reserve’s recent half-point rate cut spurred “investors to sell dollars as they put their money into markets where interest rates are rising and economies have better growth prospects.” A weak dollar will help drive demand for U.S. products and “juices up” profits of U.S.-based companies with business abroad. But it also comes with plenty of economic risks.

American consumers will feel the effects of a weak dollar at the cash register, said Michelle Tsai in Slate.com. Besides driving up the cost of imports, “the weak dollar can hurt you even if you stick to buying American.” Companies that use European raw materials will likely raise their prices, and other domestic manufactures may hike theirs simply because they can. Target and Wal-Mart shoppers, though, may be immune to the dollar’s decline. “Much of what you buy from those mass merchants—toys, stereos, T-shirts—comes from Asian countries where currency values are more or less pegged to the U.S. dollar.”

The falling dollar could also be bad news for your savings, said Jeff D. Opdyke and Jane J. Kim in The Wall Street Journal. The risk isn’t that your portfolio will lose value; it’s that returns “may struggle to keep pace with the inflation you feel in your pocketbook.” The easiest way to hedge against a falling dollar is to invest in international stocks and bonds that don’t hedge currencies. There is always the risk that the dollar will stage a comeback—making your foreign holdings worth less, once converted to dollars. But take heart—if you can—that “economists at Standard & Poor’s project the dollar will continue to fall through 2009 and then stay flat through 2011.”

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