U.S. powerless to dollar’s plunge?

The not-so-almighty U.S. dollar will continue to lose strength as the trade deficit widens, and there is little or nothing that the government can do about it, according to analysts.

The impact on the American consumer will be felt most by travelers overseas, said David Wyss, chief economist for Standard & Poor’s, who expects the dollar to fall 10 percent by the end of the year.

“Your next European vacation is going to cost a lot more, and you’re going to see lot more European tourists running around New York,” said Wyss.
Even the consumers who stay at home will see prices climb on some, but not all, foreign imports as a result of November’s $60.3 billion trade deficit, which is mostly comprised of trade with Europe, Japan and China, according to analysts. The ballooning deficit causes the dollar’s value to shrink in foreign markets, resulting in higher prices on foreign goods.

Americans could face rising prices on imported cars, and possibly on American cars too, though that would come later. “Even a Chrysler has some imported parts in it and because these Toyotas are a little more expensive, Ford might be charging more,” said Wyss.

While prices on Japanese imports are expected to climb, prices on any product bearing a Made in China label will likely be unaffected because the Chinese government keeps its currency fixed, said Wyss, despite the trade deficit with China.

China comprises more than a quarter of the trade deficit, according to Ashraf Laidi, chief currency analyst with MG Financial Group, nearly doubling the European Union’s share of 13 percent.

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