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The Bush administration has embraced the weak dollar as a means of getting out of its problems related to its trade deficit that exceeds $500 billion per year. The hope is that as the dollar falls further, American manufacturing would become more competitive. For the Europeans and the Japanese, it would become attractive to establish manufacturing plants in the US, and America will be able to export more of its goods.
The dollar is expected to fall further; the actual amount depending crucially on countries that hold large dollar reserves. The central banks of Asian countries have bought the US dollar to hold down the value of their own currencies. As a result of this, the foreign exchange reserves of these countries have risen by almost a trillion dollars. India's continuing purchase of dollars is also to keep the rupee low in value.
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