Take a look at the chart of the five-year history of the U.S. Dollar’s relationship with the Euro:
Back in August 2003, one U.S. Dollar purchased .9184 Euros. As of last Thursday, one U.S. Dollar only purchased .637 Euros, a decline of 30.64%! To put it in perspective, imagine you are going to take a trip to Europe. You reserved a hotel that is €200 per night or $313 per night (€200 ÷ .634 = $313). Leaving out inflation, that same hotel room would have only cost you $217 per night back in August 2003. That’s quite a difference. This is why other countries are griping about the falling dollar: it makes their goods and services more expensive compared to the U.S. Dollar.
Of course there’s another side to this: goods and services purchased in the U.S. with Euros are now cheaper. Using the example from the previous paragraph, a hotel that is $200 per night will cost a European tourist €127 per night. That same hotel would have cost them nearly €184 per night back in 2003 (again, ignoring inflation), or 44% more.
The dollar’s fall also makes imported goods and services more expensive here in the U.S., which means U.S.-produced goods and services are now more affordable when compared to imports and it also makes our goods and services cheaper overseas. This is good for us but bad for other countries.
There are negative aspects to the dollar’s fall. The biggest in my opinion, is with the price of oil. According to OPEC’s President, Chakib Khelil, each 1% drop in the value of the dollar against the Euro, means a $4 increase in the price of a barrel of oil. (I’m not sure how he came up with those numbers.) The dollar is down about 7% against the Euro so far this year. Based on that, about $28 of oil’s $50 price rise can be attributed to the falling dollar.
These trade-offs (and lots of others) are what make the study of economics so interesting.
I’m not saying the dollar’s fall is a good thing, but it does have some benefits.