U.S. Dollar Continues To Founder

The value of the U.S. dollar on the world market is sinking. It is near a 14-month low against the euro and other major currencies. David Wessel of The Wall Street Journal talks with Renee Montagne about why the dollar is falling and what it means for Americans.

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RENEE MONTAGNE, host:

We turn to the currency markets now where the U.S. dollar has been sinking for more than a year. It's near a 14-month low against the euro. To find out what this means for us in America, we've called David Wessel. He's economics editor of The Wall Street Journal.

Good morning.

Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning, Renee.

MONTAGNE: Now a falling dollar or a weaker dollar, it sounds bad. But how does it affect workers, consumers and businesses, a little bit different for some of them.

Mr. WESSEL: Right. You know, it's actually good for some people and bad for others. Basically, a weak dollar hurts those who buy imports, whether it's wine or cars from Japan. But it helps those who export, like Caterpillar, which gets 60 percent its sales overseas. Look at it this way, if you buy maple syrup, 80 percent of it comes from Canada. The Canadian dollar is very strong against the U.S. dollar. It's going to cost you more at the grocery store to buy maple syrup.

But if you're like David Campbell, a fellow who we wrote about in The Wall Street Journal the other day, who produces maple syrup in Salem, New York, it means higher profits, because when the price of Canadian maple syrup goes up, he can raise his prices, too. His costs don't go up, so it's good for him and not pancake lovers.

MONTAGNE: Okay. Well, remind us why the dollar has been falling in the first place.

Mr. WESSEL: Well, you know, in some sense it's a mystery. Who can ever understand why markets do what they do and they're so fickle, they could change their minds tomorrow. But I think there're probably three big reasons. One is, it's a sign in a way that the world is moving away from crisis and towards normal, because in the worst moments of the financial crisis, a year or a year and a half ago, people were so frightened that they wanted to have their money in the safest thing possible, and that is the U.S. dollar and U.S. Treasury securities.

So that pushed up the currency, even though the crisis was really bad in the United States. That era of crisis has faded, so people are willing to put money in other currencies, yen or Australian dollars or something.

Secondly, we have very low interest rates in the United States; other countries are starting to raise their interest rates. All else the same, that tends to move down the dollar and move up other currencies. But there's more to it than that. It may reflect some anxiety about the health of the U.S. economy, about the ability of our government to control deficits, about the ability of the Federal Reserve to keep inflation from taking off. So it may be kind of a warning that the rest of the world is getting nervous about the U.S.

MONTAGNE: Well, given everything else the administration is doing about the economy, is it doing or even saying much about the dollar falling?

Mr. WESSEL: Well, Treasury Secretary Geithner, like his predecessors, constantly says he's in favor of a strong dollar. But, in fact, the U.S. government, both the Fed and the Obama administration, are tolerating this weakening of the dollar. They think it's sort of the normal course of events and it's help - good for U.S. exports. They're just hoping that it doesn't turn into an avalanche. So the reason they can't be completely open about their views on the dollar is if they said oh, a little dollar weakening is okay, that could start some kind of tumble in the dollar where it would fall very fast and that would be dangerous.

MONTAGNE: Well, fast against what other currency, because is it, you know, every currency at this point in time, or just the euro?

Mr. WESSEL: No. That's a good question. The dollar is weak against the euro, against the Japanese yen, but it hasn't moved very much against the Chinese currency. And that's a problem not only for us, but for the Europeans who are quite upset about the fact that they seem to be taking the brunt of all the dollar's weakness, it's hurting their exports, and so there's a lot of pressure both from the U.S. and Europe on the Chinese to let their currency rise more against the dollar. They don't want to do that. That would hurt their exports.

MONTAGNE: David, nice to talk to you.

Mr. WESSEL: It's a pleasure.

MONTAGNE: David Wessel is economics editor of The Wall Street Journal.

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