As the result of this, government cannot raise interest rates and may need to halt interest rates where they are. While lower interest rates allow borrowing, higher interest rates may actually serve those better who have already invested in bonds and securities. But if U.S. cannot move interest rates around for fear of further halting economic activity then dollar is in constant danger of doing further down.
So the main question that arises here is this: whether a weak dollar is really bad for the economic health of the country? As easy as it may be to say yes, the answer is actually quite tricky. In more ways than one, a weak currency may actually serve larger trade interests of a country. When dollar is weak, it means more units of it can be bought for some other currency. This also means that U.S. products become cheaper for foreign buyers. This automatically attracts people to U.S. exports and thus allows U.S. exports to compete freely with some of the best products in the world. This leads to an increased interest in U.S. exports and thus a better U.S. economy on the whole. The exact opposite happens...
dollar rises against other currencies. The answer to weak dollar question is this: when a currency loses some value against a major currency, initially at least there is no real cause for concern. However if the value continues to fall, it can spell disaster for the economic health of the country.
In foreign markets today, any product coming from EU countries are more expensive than U.S. products. People are naturally attracted to U.S. products and this had actually worked as a warning to UK and Euro where U.S. was urged to work on the value of dollar as to strengthen it against these powerful currencies. But as long as it is serving the trade goals of the U.S., we can expect a fall in dollar. The unfair advantage that a country gains due to weakening of its currency doesn't last forever. Once the health of economy improves, the international checks and balances system starts working to make sure that better economies have stronger currencies.
References
Sterling Surges against the Dollar Whilst the FTSE Remains Strong," the Birmingham Post (England) 1 Jan. 2007: 24
