Some win, some lose as dollar falls

[ProSense]

Some win, some lose as dollar falls

By MARTIN CRUTSINGER, AP Economics Writer
Mon Nov 19

WASHINGTON - The once-mighty dollar has been drooping lately, falling to historic lows against the 13-nation euro, the Canadian "Loonie" and other foreign currencies. Here are some questions and answers about the dollar's slide and the impact it will have.

Q: Why is the dollar so weak all of a sudden?

A: The dollar has actually been falling in value since early 2002. It dropped nearly 25 percent over that time against a group of major currencies, according to an index maintained by the Federal Reserve. The problem is that the slide has accelerated sharply since late summer.

Q: What happened?

A: The credit crisis that hit with ferocity in August spooked foreign investors, causing them to pull some of their investments out of U.S. markets and put them in other countries. That meant the foreign demand for dollars fell, and the currency slid in value.

Q: Was that all that occurred?

A: No. The Federal Reserve contributed to the slide when it decided Sept. 18 to cut a key interest rate it controls by a bigger-than-expected half point. The Fed wanted to lower U.S. interest rates to boost the economy and prevent a recession. But the action also prompted some investors to move their holdings to other countries where interest rates were higher. Again, the forces of supply and demand meant that if fewer people wanted dollars, the price of the currency would fall.

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Q: Does anybody win from the weaker dollar?

A: American manufacturers and farmers are enjoying a surge in export sales to record levels as the weaker dollar makes their goods cheaper and thus more competitive abroad. The export boom is helping to lower the U.S. trade deficit this year following five straight years of record highs.

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Q: So why not let the dollar keep falling?

A: As long as the decline is orderly, economists think the weaker dollar is exactly what is needed to lower the trade deficit to more manageable levels. The concern is what might happen if the decline is too rapid. That could trigger a rush for the exits by foreigners, sending U.S. stock prices plunging in value and interest rates soaring as demand for U.S. bonds suddenly falters. All that could send the country into a recession.

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OPEC to study effect of dollar on prices

By SEBASTIAN ABBOT, Associated Press Writer
Sun Nov 18, 3:14 PM ET


RIYADH, Saudi Arabia - OPEC will study the weak U.S. dollar's effect on the oil cartel's earnings and investigate the possibility of a currency basket, Iran's oil minister said Sunday.

"We have agreed to set up a committee consisting of oil and finance ministers from OPEC countries to study the impact of the dollar on oil prices," Gholam Hussein Nozari told Dow Jones Newswires at a rare heads-of-state OPEC summit.

Iraqi Oil Minister Hussein al-Shahristani also confirmed that the Organization of Petroleum Exporting Countries was forming the committee, which would "submit to OPEC its recommendation on a basket of currencies that OPEC members will deal with." He did not give a timeline for the recommendation.

Though a final statement issued Sunday at the end of the summit did not specifically mention the dollar or a committee, it did say the oil-producing group would look into ways of improving financial cooperation.

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