The international purchasing power of the almighty dollar is waning. On foreign exchange markets yesterday, the US dollar fell to $1.38 against the euro, its lowest ever level against the European single currency.
The dollar has been in the doldrums for five years now. It is difficult to credit that as recently as 2002, the dollar's exchange rate against the euro averaged $0.95.
In the intervening five years, the value of the US currency has slipped by 45 per cent against the euro. This represents a currency depreciation of extraordinary proportions by the world's most powerful economy.
The proximate cause of the dollar's recent weakness - it has fallen by five cents against the euro since the end of March - can be traced to difficulties in the US housing market.
However, while worries about over-enthusiastic US mortgage lending may explain the dollar's immediate difficulties, they are insufficient to provide a rationale for the US currency's downward trajectory over the past five years. Longer-term forces are clearly at work.
The most potent of these forces is the continuing size of US balance of payments deficits and the sustained borrowing from the rest of the world they engender. In 2006, the US external payments deficit amounted to 6.5 per cent of gross domestic product (GDP) and it is forecast to remain above 6 per cent of GDP both this year and next. Since external payments deficits must be financed by inflows of foreign borrowing, the US is finding itself increasingly in hock to the rest of the world.
A persistently weaker dollar will, on balance, damage the Irish economy. The United States is Ireland's largest single foreign customer.
A decline in the dollar makes Irish goods and services more expensive in the United States. This dollar-engineered reduction in Irish price competitiveness will tend to reduce sales, squeeze profits and place jobs at risk among Irish enterprises that look to US markets for their business.
In similar vein, a declining dollar makes it more expensive for US tourists to visit Ireland. Fewer are likely to travel to this country as a result. Even when US tourists continue with their plans to visit Ireland, they may be inclined to curtail their stays when they realise how little their dollars will buy.
However, the impact of the dollar's decline is unlikely to be restricted to markets for goods and services. The reduced purchasing power of the dollar overseas is likely to curb the American appetite for foreign direct investment. Ireland, along with others seeking to attract inflows of US investment, could suffer investment shortfalls in the short term as a result.
But it is not all bad news. A falling dollar reduces US prices for Irish buyers. Shopping trips to New York and Boston will be cheaper, as will holidays in the US. And perhaps more importantly, since the price of oil is denominated in dollars, the decline in the dollar against the euro will take some of the pain out of rising oil prices, currently hovering around $75 a barrel.