The Dollar and Its Rally Need Real Support

Even with the recent uptick in the value of the U.S. dollar, the world's reserve currency remains dramatically weaker than it was at the start of this decade, and it's likely to stay that way, if it doesn't sink even further.

The greenback has lost about a quarter of its value over the last half-decade, and it's down 15% since the beginning of 2007, according to a New York Board of Trade U.S. dollar index that tracks its value against a basket of foreign currencies. While White House officials have stuck to their empty mantra in support of a "strong dollar policy," they have repeated that slogan much less frequently this year than they have in the past.

"The U.S. Treasury puts itself in an awkward position when it repeats its belief that a strong dollar is in the best interest of the country at a time when the dollar is struggling with record lows against the euro and other foreign currencies," says Michael Woolfolk, senior currency strategist with Bank of New York Mellon.

Economists point to the benefits that a weaker dollar will have in easing the trade deficit that the U.S. has piled on for decades. Meanwhile, workers and consumers are watching the value of their wages and their savings shrink, while their cost of living goes up. Skeptics say the dollar's days as the world's reserve currency could be numbered, and that's a prospect that would have profound consequences for the U.S. economy and its influence around the world.