What does it mean when the dollar is weak ?

Question

i seem to hear this statement alot mind you i did recieve and a in economics but that was in high school my teacher just liked me alot... maybe i should have paid attention

Answer 1

It means that internationally, the dollar provides fewer goods and services than it did in the near past.  For example, the dollar has lost about 33% of its purchasing power in the last year  to buy European goods.  This means that it takes 50% more US dollars to purchase the same goods it could a year ago.  Americans have lost 33% of their European purchasing power.  A $10,000 item now costs Americans $15,000.  On the other hand, Europeans buying goods that cost e10,000 now only have to pay e6,6667.

Americans lost 1.7 trillion dollars in wealth last quarter.

Answer 2

A currency's being "weak" or "strong" is relative term that one generally only hears in terms of exchange rates with other currencies. An answerer above pointed out - rightly - that a weak or strong dollar is meaningless except in imported/exported goods.

You may have noticed that your imported cheese and wine have gone way up in price (except for Australian wine, which somehow remains very inexpensive) over the past two years.

You may also have heard that our export sectors have experienced a boom in sales recently. You may also have seen that there are a LOT of Europeans visiting the U.S. and taking shopping vacations here. This is because, relative to the euro, the dollar is weak. A euro buys more dollars today than it did one year ago (and certainly more than in 2002, when I was in Germany and the dollar and euro were almost at parity).

Note that we also have had price rises recently, particularly in food and fuel prices. This is not so much due to the weak dollar (unless you're talking imported food) - consider that oil is priced in dollars on the world markets, so no foreign currency exchange is necessary for US companies to buy Saudi or Canadian oil. Rather, there is a demand and supply consideration here.

The price of rice has jumped partially because three of the largest exporters (Egypt, India, Vietnam) took their rice off the world markets, and a fourth (U.S.) is experiencing heavy flooding in our rice areas.

The price of milk has jumped because the price of feeding dairy cows has jumped - partly due to increased demand for beef (and hence for corn to feed the cattle) and ethanol usage.

The price of most crops will be high this year partly because much of the cropland (Iowa, Illinois, Missouri) is under water. In particular, we're feeling the pain in St. Louis, where most of us are taking a day or two off next week to help at the levees - the parking garage for the Arch is under four feet of water.

I'll offer a clarification on nifty's answer - she stated that the dollar is weak because it isn't backed by gold. In truth, neither are the currencies of any of our trading partners (except for Switzerland, whose franc is still fully convertible), nor have they been since 1971.

Answer 3

A weak dollar is in terms of its value compared to foreign currencies. It means nothing unless you are importing or exporting stuff (ie: Oil from Arabia or Widgets from China).

Answer 4

First off it is a term that is relative to the strength of other countries .  The term means that the dollar is less desireable than other countries' currencies.  The cause is usually supply & demand -- a weak currency could mean that there are more dollars than the world is demanding.  Another cause could be large deficits - bringing in more goods from other countries (paid for in dollars, i.e., increasing supply of dollars) than we sell to other countries (which they must demand dollars in order to pay for).  

The result is often inflation -- it takes more dollars to buy things from other countries.  However, a weak dollar also means it takes less of other country's money to buy US goods, so it can help out companies that ship goods out of the country (often manufacturing jobs).

Answer 5

Weakening dollar means that more currency is required to purchase a good or service than was previously demanded for same good or service.  Perceived value of currency is diminished.

Example.  One pound of Sugar Today $2, Six months ago $1

Answer 6

When you hear that the dollar is "weak" it means that it is in comparison to other major currencies.  So, in the FOREX market currently,  we see that the EURO is obviously stronger or  performing better over the past year in comparison to the dollar.  A weak dollar can also be used to describe how the dollar is doing in comparison to how it has been over time (using moving averages, resistance and support among other things).

We must remember that how strong/weak or however you wish to describe currencies is still determined on basic supply and demand.

Answer 7

the dollar has 2 values, the external value and internal value. internal value, in short means the purchasing power of the dollar, and the external value refers to the exchange rate.

if a domestic dollar is able to buy you 2 doughnuts and a cup of coffee, and it costs 2 foreign dollars in another country to do the same, by virtue of the purchasing power parity, a domestic dollar is worth the same as 2 foreign dollars.

scenario 1

if the domestic dollar is now able to buy only 1 doughnut and a cup of coffee, the internal value of the domestic dollar has fallen.

scenario 2

if the demand for domestic dollar has fallen, then the external value has decreased since it will cost less to get 1 domestic dollar.

crystal clear?

Answer 8

It means that the dollar is worth a lot less then the Euro right now. Main reason is because our government owes so many people so much money and we don't have the gold to back it any more like we used to.