The BBC has an article with some views on why it is happening, and what to expect. Some excerpts: Behind the problems of the dollar lies the huge and growing US trade deficit, and the large Federal budget deficit... That [trade] deficit is now heading above $800bn for 2006, or 7% of the US economy, and shows no signs of diminishing... Together, the East Asian countries have accumulated foreign currency surpluses of nearly $1 trillion, much of it held in US Treasury bonds denominated in dollars. Thus they are funding both the budget gap and the trade gap. ... The classic economic view of how to correct such changes is to adjust the exchange rate in order to make US goods cheaper and Asian goods more expensive. The article also has a few things to say on the impact abroad: ... foreign companies who have derived an increasing proportion of their sales and profits from the US market could also be hit by falling demand for their exports. The sharp falls in non-US stock markets, ...
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