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Weak Dollar – A dollar that has relatively little purchasing power abroad and that can be exchanged only for a relatively small amount of foreign currency, such as the Japanese yen, the euro or the Canadian dollar. A weak dollar signifies that imports are increasingly expensive and that exports are inexpensive. Thus, the level of exports tends to rise while imports decline. The dollar may weaken because of government actions, or in response to declining economic conditions, large trade and budget deficits, inflation, or unattractive investment opportunities in the U.S. relative to other countries.
Strong Dollar – A dollar that can be exchanged for a large or increasing amount of foreign currency. The strength of the dollar has an impact on imports and exports because goods and services from a foreign nation are usually purchased in the currency of the producing nation. For example, if the dollar were strong, one would expect imports to be high and exports to be low because the dollar will buy a lot in a different country while it is expensive to purchase dollars with outside currencies.

In early 2002 the dollar peaked and has since weakened in value to other major currencies. A weaker dollar is good news for exporters and those who compete with imports, while consumers of imports will be unhappy. However, it is important to
understand that a falling dollar is indicative of the surge and flow of international
capital in and out of the American economy. Those flows will have important
implications for domestic interest rates and activities sensitive to credit conditions,
such as housing and business investment.
The weak dollar is one of the major contributing factors to our current high gasoline prices. Since oil can only be purchased in dollars, regardless of the country doing the purchasing, a weak dollar inflates the prices for barrels of oil, which translates to higher gas prices. One cause of this weak...