The Dollar Could Slip Some More

The dollar fell more than 11 percent last year compared with the euro and rose slightly against the yen. A lower dollar helps boost U.S. exports, by making them relatively cheaper in overseas markets, and attracts more foreign tourists to the United States.

Many economists think the dollar will slip a bit lower this year for the same reasons it slid last year: the huge U.S. trade deficit, slower U.S. economic growth and robust growth abroad. Many analysts think the Federal Reserve will cut interest rates by midyear, while other governments are raising borrowing costs, which tends to diminish the demand for dollars.

Other analysts, however, forecast that the dollar will stabilize this year. They generally bet that the Fed will hold interest rates steady because of moderate U.S. economic growth as economies overseas lose momentum. The Blue Chip consensus also predicts that the U.S. trade deficit will shrink slightly, as Americans import less and export more.

Also, one major prop under the dollar has not shifted significantly. The Chinese government, and many others, are running big trade surpluses with the United States and plowing their profits into U.S. investments, such as Treasury securities, stocks and other assets. That keeps demand for the dollar solid.