THE DOLLAR: Once a Rocket, Now a Rock

As the U.S. dollar comes down from its recent flight of fancy, will the fall be dangerously fast? Only a month ago, the currency was rising so relentlessly that economists were concerned that its strength would worsen the trade deficit by making U.S. exports too costly. That fear seemed misplaced last week as the dollar plunged to a level some 7.5% below its mid-June highs, closing the week at 1.87 deutsche marks and 139 yen.

The reeling dollar reflected fears of recession. The Federal Reserve Board appears ready to spur the economy by letting interest rates fall, but that could further undermine the dollar by making U.S. investments less attractive to foreigners. Unemployment reached 5.3% in June, up from 5.2% in May, another sign of a slowdown.

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CREDIT: TIME Chart

CAPTION: Yen per dollar