Dollar’s Weakness May Persist, Analysts Warn

The dollar was little changed against the euro and the yen Monday, but it continued to lose value against other key currencies. Some analysts warn that the dollar’s recent weakness is likely to persist.

That would be bad news for American tourists headed abroad this spring and summer but potentially good news for U.S. investors in foreign stocks.

The dollar had been the strongman of world currencies in the last few years, but this year it has lost ground against the euro, the yen and many other major currencies. The dollar’s weakness in part reflects that some global investors have soured on the outlook for the U.S. economy and markets.

“People are realizing that the U.S. is not as good a place to invest in as it was,” said Scott Barlass, who helps manage $20 billion in assets for Abbey National Asset Managers in Glasgow, Scotland. “It will be a grind lower for the dollar,” he predicted.

Not everyone agrees. Expectations of relatively strong economic data this week “bode well for the dollar’s prospects,” said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington. “People seem to want to flood right back” into dollar-denominated assets on signs of an improving U.S. economy, he said.

One dollar was worth 127.70 yen and 1.097 euros in New York on Monday. That’s down from 131.62 yen and 1.122 euros at the start of the year.

The dollar has taken a bigger fall this year against some other currencies, notably the Australian and New Zealand dollars, which have been boosted by the strength of their economies.

A weaker U.S. dollar means American tourists’ money won’t go as far overseas this year. But a falling dollar can enhance returns for U.S. investors in foreign stocks, because those stocks are worth more when translated from local currencies into dollars.

Though the dollar has fallen against many key currencies, it is gaining value in Latin America. The dollar buys nearly 7% more Brazilian reals and 4% more Mexican pesos than at year’s end.

Brazil’s currency has weakened on concerns that left-wing presidential candidate Luiz Inacio Lula da Silva is gaining in the polls, though the election won’t be held until October.

In Mexico the peso has fallen as the country’s central bank has lowered interest rates. Many analysts say the central bank is heeding the calls from major Mexican industrial companies that have lobbied for a weaker currency, which makes the country’s exports cheaper abroad.

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Where the Buck Buys More and Less

The dollar has rallied against Latin American currencies this year, but its value has been falling against the euro, the Canadian dollar, the Australian dollar and others. A sampling of what one dollar was worth in local currencies Dec. 31 and Monday:

Currency per U.S. dollar: Pctg.

Country Currency Dec. 31 Monday change

Brazil real 2.323 2.483 +6.9%

Mexico peso 9.158 9.523 +4.0

Euro zone euro 1.122 1.097 -2.2

Canada dollar 1.592 1.556 -2.3

Japan yen 131.62 127.70 -3.0

Switzerland franc 1.657 1.595 -3.7

Australia dollar 1.958 1.828 -6.6

New Zealand dollar 2.400 2.197 -8.5

Sources: Times research, Bloomberg News