Few Seeing Usual Benefits of Rising Dollar

Normally, Americans Would Travel More and Imports Would Jump, but Caution Rules the Day

LONDON -- The value of the U.S. dollar has soared with unheard-of speed against many currencies in recent weeks, but the global financial crisis has altered the usual effects of such a spike.

Normally a rising dollar means more Americans traveling abroad and foreign countries exporting more goods and services to the United States. But this time, even though the dollar has gained about 25 percent against the euro and the British pound since early August, few analysts said they expect to see that happening anytime soon.

As Americans face recession and rising joblessness, fewer are tempted to take overseas vacations or buy more imported goods. "In an ideal world, the soaring dollar sounds wonderful" for British exports, "but quite frankly no one is buying anything from anyone," said Howard Wheeldon, senior strategist at BGC Partners in London.

At the same time, the speed of the climb has brought debt problems almost overnight to many struggling countries. Foreign governments and individuals who borrowed in dollars are finding that the corresponding rapid decline of their currencies against the dollar has made it harder, and in some cases impossible, to buy enough dollars to keep up loan payments.

The International Monetary fund's emergency talks, including those with Iceland, Hungary and Ukraine, have largely involved nations whose banks are facing huge amounts of unpaid debts that are driven in part by the mismatch of local currency income and foreign currency debt. Also, the euro has risen against Eastern European currencies.

In Ukraine, where the hryvna has fallen to its lowest value since coming into use in 1996, so many people have rushed to convert their savings into dollars that many exchange offices ran out. About $3 billion worth of local currency has been turned into dollars and euros, according to Sergiy Kruglyk, a spokesman for the National Bank of Ukraine.

The dollar has strengthened significantly against the Indian rupee, the Polish zloty -- nearly every currency except the Japanese yen.

While it may not make U.S. consumers rush out and buy cheaper imports, analysts said it may make U.S. exports even harder to sell, because the strong dollar tends to make them more expensive to foreigners. Also, tourists may be less tempted to visit the United States -- already there are signs that Canadians who frequently shopped in U.S. border cities are staying home because goods are suddenly far pricier for them.

Like gyrations in world stock markets, the speed and unpredictability of currency fluctuations have caught many by surprise. "We have really not seen volatility of this magnitude -- it's jaw-dropping," said George Davis, chief foreign exchange analyst for RBC Capital Markets in Toronto.

Analysts attribute the rise of the dollar to a combination of factors, including that investors in hard-hit emerging markets are increasingly selling local shares and retreating into dollars, which are still widely seen as safer than most currencies.

Alex Dunn, senior account manager at Caxton FX, a foreign exchange firm that has seen a 400 percent surge in transactions, attributed the rush to the dollar to the idea that while "America led us into the global recession, they will lead us out."

Wheeldon offered a similar view. "When people think, 'Where should I put my money?' and they see things like Iceland's currency falling off the cliff, they say, 'Well, you have to put your money somewhere, why not the U.S. dollar?' "