Is the era of the strong dollar gone for good–and is that all bad? Amid concerns about terrorist attacks, a sickly stock market, corporate shenanigans and a less-than-convincing economic recovery, the U.S. currency has given up a lot of ground in recent months and is expected to go lower still. But economists say that as long as the dollar doesn't go into a tailspin, its weakness should help more U.S. corporations than it hurts.

The dollar is approaching parity with the euro after having fallen about 10% against the EU currency in the first six months of this year. (See chart.) Against the Japanese yen it's down about 9%. Yet even after those declines, economists say the dollar remains overvalued after its strong run in the late 1990s, and most expect it to weaken further in the coming months. A weaker dollar in theory will boost U.S. inflation, but economists doubt the Federal Reserve will let inflationary pressures get out of hand. They say the real downside could come if the dollar's decline goes too far, too fast. The rest of the world has been trying to "hitch a ride" on the U.S. economic recovery, says Chris Probyn, chief international economist at State Street Bank & Trust. "If the dollar were to crash land, that would certainly pose a problem for the global recovery."

Assuming such a scenario doesn't come to pass, the dollar's decline is a big plus for U.S. companies that export goods or repatriate profits from overseas subsidiaries, economists say. "If you export, you can either keep prices the same [in overseas currencies] and translate the profits at a higher rate or you can lower your price to gain market share," says Chuck Hill, director of research at Thomson Financial/First Call. "It depends how you play your hand, but certainly it's a positive either way."

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