The weaker dollar is helping exporters and hurting importers, and increasing costs for American consumers traveling overseas or buying imported products.
The dollar has fallen to a four-year low against the euro and a 10-month low against the yen after recent comments by Treasury Secretary John Snow that suggested the United States is backing off its strong dollar policy.
The weaker dollar is making it tough on importers because they are forced to either raise the prices that they're selling the product for in U.S. dollars, or sacrifice profit to keep up sales.
On the other hand, companies that are selling their product to overseas companies in U.S. dollars can either lower their prices to be more competitive or rake in more profit.
“Overall, what the strategy of the U.S. government at this point is they really don't mind seeing the dollar drop in value because it does make our exports more attractive overseas because people can buy them cheaper,” said Rick Dennis, vice president and senior foreign exchange adviser for Wells Fargo in Phoenix.
On the other hand, the cost is going up for companies that import goods, he said. The same is happening for people traveling overseas, he said.
“A year ago, if you went to Europe and let's say your hotel room was going to be 100 euros a night, that would cost you $91 approximately,” Dennis said. “Now, that room is going to cost you about $117. That's quite a bit of impact.”
On the plus side, the weaker dollar does make it cheaper for Europeans to travel to the United States, which could increase tourist dollars flowing into the United States and Arizona economies, Dennis said.
So far there hasn't been any significantly negative impact from the weak dollar except nervousness in the stock market, said Lynn Reaser, chief economist with Banc of America Capital Management.
“But if the dollar's decline started to accelerate, then we could see a dampening in foreign demand for both stocks and bonds,” she said. “Consumers are probably beginning to see or will see fairly soon some increase in the price of imported goods, and they might see U.S. companies taking some opportunity to raise their prices a little bit where they are competing against imports, which are now more expensive.”
According to some East Valley travel agents, the weakened dollar isn't causing people to turn away from European travel.
Other issues, such as unrest in Iraq and the Middle East, and SARS are persuading more people to vacation inside the United States, instead of abroad, said Paul Seiferth, owner of Terra Travel in Tempe, Mesa, Scottsdale and Phoenix.
“Those sorts of things I think have really more effect, as well as just the weakness in the U.S. economy that has probably made more people say ‘you know what, we don't need to spend thousands and thousands of dollars to go over to Europe, let's do something within the United States, or go to Hawaii or maybe Mexico because it's close,’ ” he said. “I do think people are probably more just staying closer to home. Instead of taking that big trip to Europe, they might drive up to the Grand Canyon or decide to do national parks.”
More people seem to be concerned about the continued weakness in the economy and what it could mean to them financially, Seiferth said. Because of that, people are more inclined now to book vacations in the short term, as opposed to several months ahead, he said.
“People are concerned over things like ‘am I going to have a job next week to be able to afford this trip, or if I planned a cruise or a trip to Europe and it's $10,000, then I don't have a job and I'm not going to want to go on that trip,’ ” he said.
Stewart Travel in Mesa hasn't seen any interruption in European vacation bookings because of higher costs, said owner Pam Stewart. The agency recently began advertising a European tour package, which so far has been well received, she said.
“You would think that, with the dollar, that that might be a challenge and it hasn't been,” she said. “I think part of the reason is that a lot of people on the package deals like this, they basically pre-paid from the states in U.S. dollars, so they don't have a lot of expenses that they would be paying for while they're on the trip in other monies.”
Also, those who book overseas trips usually aren't fazed by any increased costs during the trip, Stewart said.
“If the trip is going to cost $4,000, and because of the exchange rate it's going to cost $4,400, it's not going to make any difference,” she said.