Dollar woes could affect market

NEW YORK – The anxiety over inflation that riled the markets in recent days is just one of the risks Wall Street investors are contending with. Next up, depreciation of the dollar.

After showing surprising strength through 2005, the U.S. dollar has been weakening this year. The decline has picked up momentum since April 21, when the Group of Seven industrialized nations made it clear they wanted Asian countries to allow their currencies to strengthen to help reduce their growing trade surpluses with the rest of the world.

Experts expect the dollar to further depreciate this year, especially against the Japanese yen and other Asian currencies. A weakening dollar doesn’t bode well for long-term bonds, making them less attractive to foreign investors. But it could begin to whittle away at the huge imbalances that have built up in U.S. trade accounts – and that will be a plus for the U.S. economy and the markets.

The good news is that almost no one sees a dollar crisis but, instead, an “orderly” retrenchment.

The depreciation of the dollar will make U.S.-made products more competitive abroad, boosting the nation’s exports. At the same time, it should make imports more expensive, reducing demand for them and narrowing the trade deficit – although those costlier imports could also mean higher inflation at home.