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Dollar is losing some of its muscle

Ashley Milne-Tyte Jul 11, 2007
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Dollar is losing some of its muscle

Ashley Milne-Tyte Jul 11, 2007
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TEXT OF STORY

Kai Ryssdal: And so on to the dollar. We mentioned yesterday it’s the lowest it’s been in a quarter century against the British Pound. Record weakness on the Euro and more of the same today. Worse, in fact.

Most of the blame’s being laid at the feet of the subprime mortgage market. As Bob alluded to, though, the greenback’s weakness is making overseas investors kind of nervous. But how come? From New York, Ashley Milne-Tyte reports.


Ashley Milne-Tyte: The U.S. is still the biggest market in the world. Everyone wants to sell their goods here. But a weak dollar means it’s more expensive for Americans to buy foreign products.

Mike Englund of Action Economics says on the other hand, a weaker dollar means it’s easier for U.S. exporters to sell their stuff abroad.

Mike Englund: So export growth is outpacing import growth 2-to-1 and maybe even 3-to-1 this year.

Still, he says, don’t expect our trade deficit to disappear overnight.

Englund: It’s gonna take a fairly hefty growth rate of exports, however, to catch up with imports given that they’re at a higher level.

England says the dollar was overvalued. He suspects the government is glad the dollar has slipped away from its highs of several years ago.

But Axel Merk of the Merk Hard Currency Fund says U.S. companies may be able to sell more abroad, but a sliding dollar has made them more vulnerable.

Axel Merk: Let’s not forget that as the dollar is weakening also, the share prices become less competitive as an acquisition tool for example. A European company can now take over an American company much more easily, because it’s become very cheap.

He says the U.S. depends too much on foreigners buying dollars to keep the currency high. If the dollar falls out of favor, as it has recently, and investors opt for other currencies:

Merk: That on its own will impact the dollar, and that’s why the U.S. dollar is reacting so sharply to things like a slowing housing market in the U.S., which may suggest a slowing U.S. economy.

Merk the government needs to take a more active role in boosting the U.S. dollar. Right now he says, it’s burying its head in the sand.

In New York, I’m Ashley Milne-Tyte for Marketplace.

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