It appears that the dollar may have ended its six-year cycle of decline. On April 22, it hit bottom when the euro reached its high of $1.60, and is back down to $1.55. In mid-March, the dollar dropped to below 100 yen, and is now at 105 yen. (Source: The Economist, The Dollar Rallies at Last, May 4, 2008; IHT, Has the Dollar Hit Rock Bottom?, May 5, 2008)

What happened? At the end of April, the Federal Reserve signaled that it may be done lowering interest rates. This not only provides support for the value of the dollar itself, but also may signal that a U.S. recession has been avoided. (See Fed Action May Signal End of Downturn, May 1, 2008)

However, the dollar would not strengthen even with the Fed's actions if it were not already a strong currency. Its role as a global reserve currency has made it the new gold standard. This gives the dollar its strength despite the underlying performance of the U.S. economy and the further weakening effect of the $9 trillion U.S. debt. (See Power of the U.S. Dollar, or Why the Dollar Won't Collapse)

What It Means to You

A strengthening dollar means cheaper vacations in Europe and lower cost imports, especially oil. Over time, a stronger dollar will help to reduce inflation in gasoline and food. It may not be dramatic enough to completely offset the higher gas prices typically found during the summer driving season, but it will certainly help...and it couldn't have come at a better time.

Related Reading

• Value of the U.S. Dollar
• Dollar Decline or Dollar Collapse?
• Is the Collapse of the U.S. Dollar Imminent?