“By all rights, the dollar should be declining in value, but it’s not,” says Eswar Prasad, economics professor at Cornell University. “For the dollar to decline in value, you must have currencies on the other side that will” rise.
Bad as things are in the United States, they look worse in Europe and Japan, making the yen, the euro and the British pound riskier bets in 2011. A notable exception is the Chinese yuan, which is likely to rise next year as Beijing fights inflation.
“The dollar remains the ultimate safe haven,” Prasad said.
A stronger dollar would make vacations to Europe a better bargain for U.S. tourists and reduce the cost of imports. But it would also make U.S. products more expensive in foreign markets, dulling businesses’ competitive edge.
The U.S. dollar fell against the euro, pound and yen on Friday during thin year-end trading. The euro rose to $1.3367 late Friday in New York, from $1.3286 Thursday. The British pound rose to $1.5590 from $1.5415 while the dollar fell to 81.21 Japanese yen from 81.52 yen.