A Personal Perspective on the Dollar

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On February 06, the finance ministers from the G-7 countries will meet in Florida to discuss the recent decline of the dollar against the euro and to see whether an intervention is needed. Since its high point in February 2002, the dollar has lost approximately 40% of its value against the euro.

The dollar's movements over the past few years gave rise to concerns. The high value of the euro pushed many European economies, who already found themselves in a slump, to the brink of recession. European countries partially depend on exports for economic growth because domestic demand remains subdued, despite the stimulus that the low value of the euro provided them with before 2002. However, the specter of a renewed surge in the dollar is not without its problems, either. If the dollar rises again against the euro, without an offsetting decline elsewhere, the U.S. trade deficit could rise again. So far, the U.S. trade deficit appeared to have leveled off in the second half of 2003 partly due to the dollar's decline starting in early 2002. More: DOC, RTF, PDF