The Upshot of the Dollar's Fall

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5. A weak dollar is bad for some, but might actually help the U.S. economy.

U.S. tourists abroad don't appreciate a cheap dollar, and neither do foreign companies selling into the U.S.

But otherwise, Hembre says, a weak dollar can actually stimulate economic growth in the U.S. A weak dollar makes U.S. exporter's products more competitive in the rest of the world, for example. The U.S.'s trade deficit with the rest of the world has narrowed as exports boom, eliminating the deficit's drag on U.S. growth, writes Deutsche Bank (DB) economist Carl Riccadonna. A weaker dollar also can help employment, as multinational companies choose to hire relatively cheaper workers in the U.S. Investors are also more likely to look for bargains in the relatively cheap U.S.

6. The big dangers: inflation and energy costs.

When the dollar falls, imported goods are naturally more expensive, pushing up prices. However, many experts don't see signs that a weak dollar is causing inflation yet. "It does add a little inflationary pressure," Bernard says, but he adds that the U.S. economy is so large and competitive that most companies don't really get an opportunity to raise their prices.

The one area where a weak dollar hurts, however, is in commodity prices. Oil prices are pushing up close to $100 per barrel. That could hurt growth in the U.S., but Europe wasn't hit as hard because it's paying for fuel in more valuable euros.

Rising inflation can pose a special challenge to the Federal Reserve. The threat of inflation can stop policymakers from cutting interest rates to stimulate economic growth.

7. Governments won't intervene unless things get really bad.

The world's central bankers seem surprisingly relaxed about the slide of the dollar. Few observers expect finance officials from the U.S., Europe, or Asia to intervene in currency markets unless the dollar crashes in a big way. A disorderly fall for the dollar might prompt action, but otherwise bankers are expected to sit on their hands.

8. Eventually the cycle will turn.

Right now, the Federal Reserve is cutting interest rates and the U.S. economy seems to be slowing. Next year, many expect those rate cuts to pay off, as the U.S. economy perks up again. At the same time, however, European and other bankers may begin cutting rates to stimulate their economies.

In that scenario, the dollar probably would start to rise and the euro start to fall. S&P economist Six predicts the dollar will hit bottom sometime in the middle of 2008, landing at $1.52 or $1.53 per euro. But then he expects the dollar to be back to $1.45 or $1.40 by the beginning of 2009.

Under any set of circumstances, a big rebound for the dollar isn't expected for quite a while. Americans will have to get over the embarrassment of a weak currency, perhaps by remembering that a lower buck could help keep the U.S. export machine humming along.

Steverman is a reporter for BusinessWeek's Investing channel.