Is The U.S. Dollar Set to Plummet in Value?

Many analysts believe that the U.S. dollar is set to fall sharply because of the large U.S. current account deficit. The international transactions of a nation involve many currencies and countries, and the value of a currency is determined by all of these. The large U.S. current account deficit with the rest of the world is, according to some analysts, a risk to the overall value of the dollar. In their view, the dollar is at risk of a major decline. For many observers, it is the current account itself that is the cause of concern. The implications for the currency are important because some suspect that a currency overvaluation is the source of the problem and that the remedy will be a painful fall in the value of the dollar. Whether and how the currency will change depends on investment incentives here and abroad and on economic policy changes that will affect those incentives and not so much on the size of the current account balance.