[OrrLives]

Sorry for the super-noob question... but why exactly is the dollar falling?

I've read from multiple sources that the dollar has been falling due to both the (1) growing trade deficit and (2) increasing federal budget deficits. But how do these two forces make the dollar 'worth less' than the Euro in financial markets? And yes, I did do a google search on this topic before posting. Most websites list the above two reasons and explain the implications of a falling dollar, but I am interested in the details of why individuals would want to sell dollars and buy other currencies (say, the Euro).


I understand why stocks and goods prices fall...

If many believe that a company will do poorly in the future (or offer less dividends than another company), then there will be little demand for that company's stock. Stockholders will have to lower the price of their stock in order to sell their shares.

Similarly, if there is little interest in a particular good, the seller will have to lower its price until there are a sufficient number of buyers.


But I am having trouble understanding why the dollar would fall.

If a nation prints off a lot of currency, I understand that the inflation rate will rise and a currency will be worth less as its purchasing power decreases. I also understand how political upheaval would cause a currency's value to change depending on whether the incoming government is perceived as fiscally responsible. But these don't apply to the U.S., do they?

Is the dollar falling (in part) because of people's lack of confidence in the U.S. government to pay off its debts? (which are mainly in treasury bonds, correct?)

How much of the falling dollar due to group psychology? (e.g., 'omg I heard the dollar is falling so I should put all my money in Euros' and the dollar slides further.)