What a weakened US dollar means for your finances
The value of the United States dollar has ticked down slightly this year, deepening a dropoff for the currency that stretches back months.
The greenback has fallen nearly 10% in value since the start of last year relative to a group of foreign currencies that belong to top U.S. trading partners.
A weaker dollar could raise prices for some everyday items imported from abroad, while hiking expenses for travelers overseas, analysts told ABC News.
Inflation stands at its lowest level since July, but it remains nearly a percentage point higher than the Fed's target rate of 2%.
"A weaker dollar can add insult to injury when it comes to affordability," Mark Hamrick, Washington bureau chief and senior economic analyst for Bankrate.com, told ABC News.
Here's what to know about how a softer U.S. dollar could impact your finances.
How the weakening U.S. dollar may impact your finances
A weaker U.S. dollar could result in higher prices for imported goods and steeper costs for travelers abroad, analysts said.
The anticipated rise in prices for U.S. consumers stems from the uptick in costs faced by importers paying for goods in U.S. currency. A foreign firm would likely demand a higher price since the dollars paid by a customer carry less purchasing power than they previously did, analysts said.
"The dollar is constantly being repriced relative to every currency in the world," Hamrick said. "Our purchasing power fluctuates over time as well."
A weaker dollar puts upward pressure on the price of just about every imported product, such as electronics, clothing, cars and fresh produce, Hamrick added.
A softer greenback also means U.S. travelers abroad are likely to face higher costs since what's in their pocket will exchange at a lower rate with foreign currencies, analysts said.
The decline in the dollar does deliver some benefits, however. Foreign buyers face lower prices for purchasing U.S. goods, meaning exporters could receive a boost as their products become more competitive on the global market. International visitors to the U.S. also get better dollar value for their foreign currency, potentially boosting tourism-driven spending.
The favorable outcome for exporters could improve employment in industries like manufacturing or advanced technology, while the relative strength of foreign currencies could bring additional tourists and expand the hospitality sector, experts said.
Why has the U.S. dollar lost value?
The value of the U.S. dollar -- like most assets -- is set by supply and demand.
For decades, the U.S. dollar has garnered eager demand due to the strength and stability of the U.S economy, which offers foreign investors a safe place to park their funds. In periods of global economic or political crisis, the U.S. dollar often receives a burst of interest from asset holders.
As a result, the value of the U.S. dollar has proven robust for generations.
The unusually sharp decline since last year owes in part to concern about a resurgence of inflation, which would reduce the spending power of the dollar and put downward pressure on its value, some analysts said.
A potential reduction of interest rates over the course of this year could also reduce yields on U.S. Treasuries, making the currency less attractive relative to other assets, Amy Arnott, a portfolio strategist at Morningstar, told ABC News.
Investors' faith in the continued stability of the U.S. economy has also diminished, analysts said, pointing for instance to growing U.S. debt and fluctuating tariffs.
"Rising debt levels have caused investors and central banks around the world to lose some confidence in the viability of the U.S. dollar as a reserve asset," Arnott said.
U.S. Treasuries are no longer viewed as quite as safe an asset, meaning investors are less likely to "park their money during normal times and especially during times of distress," Paolo Pasquariello, a professor of finance at the University of Michigan, previously told ABC News.
