Strong vs Weak Dollar

•A strong dollar lowers the price of foreign products for U.S. consumers; it helps keep inflation in check; travel abroad is more affordable for Americans; it's usually a sign of a strong economy.

•A strong dollar also makes U.S. products more expensive overseas, making it harder for U.S. companies to compete in foreign markets; it makes it more difficult for foreign investors to buy dollar-based securities at times of heavy U.S. borrowing.

•Conversely, a weak dollar makes American products relatively cheap abroad; more foreign visitors can afford to visit the U.S. It costs Americans more to buy foreign products thus fueling inflation. If the dollar continues to sink as it has been it could even trigger a sell-off by foreigners of U.S. investments, making it harder to pay down the national debt and increasing the risk of a recession.

•Oil is generally bought and sold in dollars, making a weak dollar one of the factors in high gasoline prices.

•The dollar has been on an extended slide against other major currencies for about five years, during which time the U.S. trade deficit has continued to rise, requiring more borrowing from abroad and furthur weakening the dollar. And recent sharp interest rate cuts by the Fed to deal with the housing and credit crises have also pushed down the dollar's value.

•Raising interest rates would strengthen the dollar. But it could be a blow to the economy and increase recession risks.


••Market traders, as shown by the rise in yields of the two-year note, expect an interest rate hike of at least ½ point in the next quarter, after their June meeting. The Fed's primary responsibility is to control inflation.