Weak Dollar, Strong Dollar Causes and Consequences (CRS Report for Congress)
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| Release Date |
Revised July 10, 2008 |
| Report Number |
RL31985 |
| Report Type |
Report |
| Authors |
Craig K. Elwell, Government and Finance Division |
| Source Agency |
Congressional Research Service |
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Summary:
After a long and large appreciation, in early 2002, the dollar peaked and steadily weakened in value relative to other major currencies through 2004. In 2005 and through most of 2006, the dollar was essentially steady. At the end of 2006, however, depreciation resumed and it has continued in 2007. A weaker dollar will be good news for exporters and those who compete with imports, while consumers of imports will be correspondingly unhappy. Yet it is important to recognize that a falling dollar is symptomatic of the ebb and flow of international capital in and out of the American economy. Those flows will have important implications for domestic interest rates and activities sensitive to credit conditions, such as housing and business investment. [â¦] The depreciation of the dollar between 2002 and 2004 was likely the consequence of slower U.S. growth and a move toward a more diversified portfolio by foreign investors. However, in 2005 the dollar strengthened again as foreign investor demand for dollars was rejuvenated. Since then, weakening demand for dollar assets by foreign investors has put the dollar on a downward path and important forces seem poised to continue to put downward pressure on the currency. This report will be updated as events warrant.
