Drop in dollar could add to U.S. economic woes

The dollar's relentless decline may increase the dangers facing the U.S. economy, with the potential for risk-averse investors to stop funding the U.S. current account deficit.

The initial trigger for the dollar's slide in recent years had been the large deficits in spending and trade, analysts said, but as long as they were funded by investment flows into U.S. dollar-denominated assets, few were worried about the long term.

But with a slowing economy and increasing concerns about the stability of the U.S. financial system because of widening losses on credit defaults, dollar-denominated securities are becoming less attractive to investors, reducing the demand for dollars to fund such investments.

"That's one of the main concerns: that the sell-off in the dollar reaches the point where foreign investors would start selling most of their positions, and then we would really have funding problems," said Omer Esiner, a market analyst at Ruesch International in Washington.

Read Complete Story