Notre Dame ReSource: Weakening dollar not without benefit

Though the dollar has dropped to a new low against the euro, its fall actually has benefited some Americans and boosted U.S. companies that export goods to Europe, according to a University of Notre Dame economist.

“For the average person, the weakening dollar means this is a good time to have foreign currency earnings – a consulting business that gets paid in euros or a pension fund or 401k that holds euro denominated assets,” said Nelson C. Mark, DeCrane Professor of International Economics and a specialist in international asset pricing and exchange rate economics.

The same benefit holds true for American companies that sell to the European market. When the euro is converted back to dollars, it results in higher profits, Mark explained. For companies such as Tupperware, which gets almost half its sales from Europe, and Levi Strauss&Co., whose overseas sales are significant, the euro buys an ever-increasing number of dollars. By contrast, European companies that sell goods to the United States are taking a hit, since every time they exchange dollars for euros, they lose money.

“The negative side to the weakening dollar is, of course, higher prices on imported goods which can become an additional source of inflation here at home,” Mark said. “The dollar has weakened not only against the euro but also against the Japanese yen, the British pound and the Canadian dollar.”

So what causes the value of the dollar to slide?

“Market participants – those people who buy and sell foreign exchange – have been focusing now for several months on the ballooning U.S. deficit,” Mark said, “meaning that we import more than we export and are paying for the shortfall by borrowing from foreigners.”

  • p. The U.S. Department of Commerce reported last week that exports of goods and services grew to a record $97.5 billion in September, yet the overall trade deficit stood at more than $50 billion for the fourth consecutive month.
  • _p. Media contact:

_ * Nelson Mark, (574) 631-0518 or " " * _p. The Associated Press contributed to this story

_ *

TopicID: 8121