The dollar continued its decline in value against the euro and several other major currencies, bringing good news to manufacturers but raising the possibility of future problems for the economy.
In Friday trading, the euro hit a new high of nearly $1.29, continuing an increase that began two years ago. The latest drop in the dollar was spurred by a weaker-than-expected U.S. employment report for December.
The euro has risen more than 40 percent against the dollar since the end of 2001 and more than 20 percent since the end of 2002. At several points since the 12-nation currency was introduced on Jan. 1, 1999, the euro was worth less than 90 cents.
When the euro rises in value, American-made manufactured goods become cheaper. Conversely, manufactured goods sold in euros become costlier.
Several factors play a role in depressing the dollar.
Economists say foreign investors are losing confidence in the U.S. ability to repay its expanding national debt. Extremely low interest rates make the U.S. an unappetizing place for foreign capital, which can earn better returns elsewhere.
Although manufacturers rejoice over a cheaper dollar, its weakness poses some threats to the economy.
Foreign investors could pull their money out of the stock and bond market. That would undercut prices just as the markets are starting to revive from three years of decline.
And more expensive imports hurt consumers. Since domestic manufacturers have more room to raise prices, American-made goods can become more expensive as well. The word for this is inflation.
What’s next: Not all economists think inflation is inevitable, but there is a consensus that the dollar will fall further against the euro.
