Falling dollar delivers a festive lift to consumers
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The dollar plunged to an all-time low against the euro yesterday, and fell past 1.90 to the pound, as European and Japanese central bankers stayed quiet on the prospect of an intervention.
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The US dollar reached a record low yesterday against the euro, which hit $1.3548 in extremely light holiday trading with most European foreign exchange markets closed.
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(InfoWorld) - The declining value of the U.S. dollar should allow PC vendors to offer bargains to people living in the euro zone, while U.S. consumers probably won't feel much of a pinch, according to a leading economist. The U.S. currency has suffered from a decision by the Federal Open Market Committee to lower the federal funds rate 50 basis points to 4.75 percent. That's the rate financial institutions charge each other for overnight loans and it has a big impact on overall interest rates in a country. The lower rate hurts the dollar because it causes investments to flow out of the U.S. to find higher interest rates elsewhere, such as England where the rate is 5.75 percent, or Australia where it is 6.5 percent. The Fed said it reduced the rate to stave off credit problems associated with theÂ bad-loans crisis in the U.S. housing market. A negative side affect for people in the U.S. is that the falling currency is leading to higher prices for some commodities. The price of oil, for example, rose to a record $83 a barrel on Thursday, largely due to the cut in the federal fund rate, according to Robert Mundell, professor of economics at Columbia University and the 1999 winner of the Nobel Memorial Prize in economics. Oil is traded globally in U.S. dollars, but oil traders have bid the price per barrel higher to offset the declining value of the U.S. dollar. Higher oil prices raise fuel costs for consumers, including heating oil and gasoline, and potentially mean higher prices for airplane tickets and shipping rates. The situation is far different for computer components, despite the fact they are also bought and sold in U.S. dollars around the world. While oil producers have the power to raise prices in order to compensate for the weaker dollar, makers of computer parts, for which the market is far more competitive, do not have the same type of leverage. The good news for people in the euro zone is that the euro rose to a record high against the dollar after the Fed's rate decision, so people in countries that use the euro should see bargains for a number of IT items. Currency traders bid the price of the euro to $1.41 on Friday, up from $1.37 at the beginning of September and $1.39 a day ahead of Tuesday's Fed rate cut. By comparison, the euro bought only $0.82 at its low point in October 2000. The stronger European currency should bring more bang for the buck, so to speak, unless retailers take advantage of better exchange rates to boost their own profits. For Americans, the news isn't bad. Despite the decline in the currency, component prices probably won't rise, Mundell said, because most of the computer industry is located in the U.S. and Asia. "Asia is a U.S. dollar area," he said, during a briefing with reporters in Taipei on Friday. Computer components are bought and sold in the U.S. currency, and nations in the region generally tie their currencies to the U.S. dollar. In addition, manufacturers are constantly working to lower costs, and these reductions are valued in U.S. dollar terms. One example of a computer component traded globally in U.S. dollars isÂ DRAM, where prices have fallen dramaticallyÂ this year. The contract price of the most widely used DRAM, 512Mb DDR2 (double data rate, second generation) chips that run at 667MHz, dropped to $1.75 each as of Thursday, down 70.5 percent since the beginning of the year, according to DRAMeXchange Technology, which runs an online trading site for the chips. The chip prices are falling because producers are churning out too many chips and causing a glut on the market.
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U.S. manufacturers benefit greatly from a cheaper dollar, one major reason why the Bush administration has taken a relaxed attitude toward the slide in the U.S. currency.
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The dollar climbed against the euro in  light trading on Monday as investors took profits in the single  European currency, which had risen on Friday after a  surprisingly softer-than-expected U.S. employment report.
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The dollar garnered support from a slide in crude oil prices.
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Here&#39;s another good reason to finish your holiday shopping early: The US dollar reached a new all-time low against the euro Friday for the fourth straight day, raising the strong possibility that US consumers will pay much more for imported goods as the
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Last-minute Christmas shoppers helped lift this month&#39;s retail sales, but some analysts still are concerned that Americans didn&#39;t spend enough to give chain stores the boost they had requested from Santa.
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The dollar fell to a record low yesterday against the euro, which rose to $1.3640 as the dollar&#39;s slide continued in thin, post-Christmas trading.
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The dollar crept up on Wednesday, enjoying some respite from recent falls due to caution ahead of an announcement on U.S. interest rates and after more European officials spoke out against the euro's rapid rise.
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You probably know that the dollar is plunging. That will make it expensive to travel overseas for the holidays or to buy something made in a foreign land.
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Apart from truffles and a variety of other imported foods, the sinking dollar has so far had a modest impact on the prices paid by American consumers.
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The dollar rose on Tuesday after a downbeat assessment on European growth and a less-dire-than-expected read on U.S. consumer confidence encouraged traders to buy back dollars after aggressive selling.
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The dollar rallied across the board on  Wednesday in a technical rebound after two U.S. economic  reports prompted dealers to unwind large bets against the  currency.
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The dollar staged a comeback on  Wednesday, as investors took profits on other major currencies  on signs that currency strength may prompt some central banks  to scale back interest rate tightening.
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Talks of an investment in Merrill Lynch and a strong report on consumer spending lifted investorsâ holiday spirits.
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Those who need an excuse to enjoy  themselves this festive season now have a very good one: having  fun has become cheaper, while day-to-day living expenses have  rocketed.