http://articles.moneycentral.msn.com/Investing/Dispatch/WhatTheFallingDollarMeansForYou.aspx
What the falling dollar means for you
The mighty U.S. dollar has tumbled over the past five years and is likely to keep falling. Here's how it could change your life.
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November 08, 2007 -- 16:20 ET
[BRIEFING.COM] On Thursday, it looked like it was going to be another dismal day on Wall Street with the Dow, Nasdaq and S&P dropping as much as 220, 100 and 25 points, respectively. Then an impressive late day rally, led by the financial... More
Exchange Rates Currency US Dollar
British Pound to US Dollar 2.112379
Euro to US Dollar 1.471237
Japanese Yen to US Dollar 0.008886
Canadian Dollar to US Dollar 1.075616
MoreBy Charley Blaine
Thinking about a trip to Europe? Start saving. Because of the weakening U.S. dollar, travel overseas is becoming more expensive.
Even if you don't plan a globe-trotting vacation, the falling dollar may cost you. If the slump gets out of control, it could mean inflation and much higher interest rates for Americans.
The dollar has steadily lost value compared with other major currencies since the end of 2002. Result: The euro has risen more than 70% against the dollar. The Canadian dollar, affectionately known as the loonie, is up more than 60% -- to parity for the first time in more than 30 years. The yen is up about 16%.
The dollar is falling partly because Americans import way more goods than they sell abroad -- especially oil -- and must borrow to close the gap. Another factor: Higher interest rates in Europe and elsewhere make those countries' currencies more valuable.
Consider how this affects your life:
The downsides
Pain at the gas pump will get worse. While growing global oil demand is pushing prices higher, here's the dollar angle: Crude oil is priced in dollars, and oil producers, especially members of the Organization of Petroleum Exporting Countries, want to be compensated for the dollar's decline.
In most years, the price of crude oil and gasoline declines in the fall. But this year, AAA's daily price survey shows regular unleaded gasoline at about $2.79 a gallon nationally, up 21% from a year ago.
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You may need to stay home. Let's say you went to Paris in early 2002 and paid 100 euros a night for a room in a moderately priced hotel. That was the equivalent of about $86 a night.
Today, that room would cost $142 a night, a 65% increase.
Ditto for neighboring Canada. Keep that in mind if you want to attend the 2010 Winter Olympics in Vancouver.
Your dream BMW costs more. The base price of a BMW 3 Series sport sedan has risen about 20% over the past five years, The Wall Street Journal reported this week. It's likely to go up more.
Though BMW and other automakers may accept lower profits to stay in the U.S. market, the lower dollar boosts prices for imported food, shoes, chemicals and the like. European governments worry that a dollar in free fall could be a disaster even for Germany, Europe's strongest economy.
And if price competition eases, U.S. companies could gradually charge more for products they sell at home.
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Interest rates will rise. Somehow, the U.S. has to finance its trade and government deficits, and, at some point, the investors who provide the cash will want to get paid.
The lenders are banks, pension funds and governments in Europe, China, Japan and oil-producing nations. These investors showed their potential muscle over the summer, when many balked at the terms for purchases of mortgage securities and junk bonds that Wall Street banks wanted to sell.
But there are upsides
U.S. exports will get a boost. The weaker dollar is a boon for U.S. manufacturers because it makes their products more competitive abroad.
One company that sells bakeware made at a factory in Minnesota expects its exports will grow 50% this year because of the weaker dollar, according to The Wall Street Journal.
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Lay out the welcome mat for foreign tourists. Visitors to the U.S. will find their cash goes further than before, potentially helping the travel business.
The Greater Fort Lauderdale Beachmobile -- a sandbox on wheels that promotes warm beaches and suntans -- usually goes to New York in winter to drum up business for south Florida. This year, it's going to London.
''It's almost un-American, but every time the dollar drops a little lower, it looks a little better for tourism in the U.S.,'' Nicki Grossman, the president of the Fort Lauderdale tourism bureau, told The Miami Herald.
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Of course, foreign investors want to buy what they see, pushing property prices higher in key markets like New York.
The falling dollar should help U.S. stocks. All of the companies in the Dow Jones Industrial Average ($INDU, news, msgs) are big multinationals. Each time one of them translates a profit from, say, Europe, the weaker dollar adds to the bottom line. For example, IBM Corp. (IBM, news, msgs) reported that quarterly revenue rose 9% from a year earlier. Without currency changes, the gain was about 6%.
The weaker dollar is one reason the Dow gained 684 points, or 5.1%, in the 10 trading sessions from Sept. 18 through Monday, when it smashed through 14,000 for the second time in 2007.
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This rosy scenario is good at least until the dollar drops so low that U.S. interest rates start to rise. When that happens, things could get nasty -- which is another story.
