Why is the american dollar weaking?

Question

Im asking this because the United States has the largets economy in the word since we make up 50% of the world's wealth.

We also are one of the largest importers and exporters in the world.

Also i thought that the USD is one of the most traded dollars.

But i don't understand how our country with its almost 14 or 15 trillion$ economy can have a weak dollar.

I went to England on a trip and with a thousand bucks i only got like 450 pound.

And we have like 4 times Britain's economy.

Is it because of Bush?

Is it because of Gas?

Answer 1

The American dollar is strengthening right now.  The current Pound/Dollar rate is about $1.87/pound (btw, I think whoever was doing your exchange ripped you off a bit).  It is, however an recent upturn in a long downward slide -- over the last few years the USD is has been weakening, but the last couple of weeks have been good for the USD.

As for who's to blame for the long-term drop in the value of the dollar, there are a few things:

(1) The Iraq War coupled with the Bush tax cuts pushed the US into a severe budget deficit, which raises fears that the US will default on its debt or instead just increase the money supply to cover it, lowering the value of the dollar.

(2) The increasing price of oil (again over the past few years, even if the last few weeks have bucked the trend) has increased the US trade deficit, which also decreases the value of the dollar.

(3) Recession fears and the credit crisis have prompted the US federal reserve to lower interest rates.  Lower interest rates give less incentive for people to maintain balances of USD, so they look to other currencies.  The recent small recovery in the value of the dollar is based mostly on the expectation that the ECB and the Bank of England will soon have to take similar measures while the US will have to raise rates soon to stave off inflation.

(4) The existence of the Euro.  The US may be the world's largest economy for a single country, but the combined economies of the Euro-using countries are slightly bigger than the US economy.  Instead of being the only game in town for currency reserves, the USD demand is now being split with the Euro.

Another important note is that you shouldn't expect the pound and the dollar to be equal even if the UK and the US were doing equally well (or poorly) economically.  The pound is a larger "unit of wealth" than the dollar is so something that costs 3 dollars in the US might only cost 2 pounds in the UK, so if $1000 got you 660-ish pounds, you won't have lost anything.  Right now the USD has a low value, but it's not as bad as seeing $2=1pound makes it look.

Answer 2

USA don't make 50% of world wealth, the figure is roughly 25%.

Bush and gas both, may be! Weak dollar doesn't stay weak all the time. When dollar depreciates, American goods look cheaper to foreigners and they start to buy more American products which help boost the US economy. In that sense, weak dollar is not so bad.