The U.S. Dollar continues to sink

The U.S. dollar has been declining against most currencies, which is creating ever more uncertainty. A weak dollar clearly is not a good sign for our country as a whole. However, from an investment perspective, the impact is not necessarily bad, and for some industries is actually positive.
The key reason for the weak dollar is the 0% interest rate policy of the Federal Reserve. Other countries such as China, Australia and Brazil have started to raise rates, which has been positive for their respective currencies. In addition, the European Central Bank last week raised rates for the first time in nearly three years, which helped to strengthen the Euro. Until the Federal Reserve abandons its 0% interest rate policy, our currency will likely remain weak.
The main consequence of the weak dollar is a rise in the price of commodities. While other factors, such as weather, play a role in commodity prices, the weak dollar has been the major culprit. Higher commodity prices have the most significant impact at the gasoline pump, as more than 50% of the price of gasoline is due to the cost of crude oil. For food the effect is less pronounced, as the cost of wheat constitutes less than 10% of the retail cost for bread.
Many fear that the weak dollar will lead to a major resurgence in inflation, as we are seeing with higher gasoline prices. A return to high inflation like we witnessed in the 1970s is unlikely for several reasons.  Housing-related costs are the largest component of the Consumer Price Index, and real estate prices will likely remain on the weaker side for a considerable period of time. Also, our economy is increasingly service based, where labor is the significant cost, and wage growth is expected to remain subdued given the high unemployment rate. Finally, increased global trade keeps costs down with greater competition.
Industries that import goods, such as retailers, are the most impacted by a weak dollar. The beneficiaries would be our export industries, as our goods become more competitive overseas. Industries such as technology, aerospace and pharmaceutical products have a strong international presence. Also, investing in foreign markets when our currency weakens can be positive for an American investor.
On balance, a weak dollar is negative for consumers, but for an investor is more positive, assuming the investments have some international exposure. It becomes negative for the stock market only if foreign central banks no longer purchase our governmental debt, and a major currency crisis occurs, which appears unlikely. For now, I would recommend that investors stay diversified with both U.S. and international holdings, and recognize that short-term currency moves are difficult to predict.