In El Alto, Bolivia, a bank advertisement reads: ‘‘If the dollar goes down, save in euros.’’

By STEVEN R. WEISMAN
WASHINGTON - How low can the dollar go?

The dollar has been declining in value against the euro and several other currencies since 2002, hurting travelers to Europe and American consumers purchasing European goods.
American politicians are deploring the weak dollar as a sign of American economic decline and influence.
The dollar recently traded at a new low of $1.56 against the euro, helping drive oil prices to record levels.
The dollar’s decline is also stirring some fresh tensions with Europe, which is keeping interest rates steady even as it experiences a drop in exports to the United States and other countries whose currencies are more closely aligned with the dollar.
Recently, Jean-Claude Trichet, president of the European Central Bank, said that “we are concerned about excessive exchange rate moves’’ and that “excessive volatility and disorderly movements’’ of currencies were “undesirable for economic growth.
’’ To make matters worse, many economists say that the problems of a sagging dollar are feeding off each other.
As the dollar weakens, holders of dollars, especially those overseas, are aiming for better returns on their assets by diversifying their portfolios toward other currencies, sending the dollar into further The huge American trade deficit, while shrinking somewhat, continues to generate more dollar reserves for overseas exporters at a time when it is less attractive for them to keep those reserves in dollars.
Some Middle East countries are hinting that they may move away from pricing their oil entirely in dollars, which would cause further downward pressure.
And as the U.S.
Federal Reserve cuts interest rates to jolt the economy, most recently on March 18, investors are more likely to move money to securities in other currencies to get higher returns.
Kenneth S. Rogoff, the Harvard University economist, said he sees the main forces behind the dollar’s fall as declining American interest rates and the continuing trade imbalance.
“This was coming eventually with or without a recession,’’ Mr. Rogoff said.
“I think every big player ? including central banks, the pension funds and funds outside the United States ? has been looking to diversify out of dollars gradually over a long period.
They are not doing it all at once, but the process has accelerated.
’’ Not only are President Bush and Treasury Secretary Henry M. Paulson Jr.
opposed philosophically to trying to influence currency markets, there is also the concern that any overt support for the dollar might backfire, igniting a panic sell-off of more dollars.
Mr. Paulson repeatedly states that “a strong dollar is in America’s interest’’ and the best way to keep the dollar strong is to have a strong American economy.
In November he said that the robust fundamentals of the economy would eventually “shine through,’’ attracting investors and pushing the dollar back up.
But many experts scoff at Mr. Paulson’s pronouncements as overly optimistic.

Warren E. Buffett, the financier, said recently that “the government can talk about how it’s in our interest to have a strong dollar,’’ but it is not following policies that would help.
The trade deficit, he argues, means that “we force-feed a couple of billion dollars a day to the rest of the world’’ namely to those countries that export to the United States.
Lately the administration has been pointing to trade figures showing that the American trade deficit is declining.
Commerce Secretary Carlos M. Gutierrez hailed the latest trade numbers as a reflection of improving American competitiveness.
What he and other administration officials never say ? indeed they have apparently been instructed not to say it ? is that the improvement is a result of the dollar’s decline, which makes American goods cheaper.
The reason, administration officials say, is that they do not want to be accused of “talking down the dollar.
’’ The administration’s situation has resulted in an even more contorted set of policies relating to energy.
President Bush has appealed to oilproducing countries to increase the flow of oil to put a damper on oil prices.
He has been repeatedly rebuffed, however, as oil ministers from the Persian Gulf charge that rising oil prices result more from American economic mismanagement than from constricted supplies of oil.
Many oil experts agree.
According to Daniel Yergin, who runs Cambridge Energy Research Associates, the price of oil for Europeans is still roughly what it was last year.
What is causing oil prices to surge, he said, is low American interest rates that are being pushed down in hopes of avoiding a recession.
While global demand has indeed grown, those low rates have also spurred an investor rush to commodities, especially oil contracts.
“There’s a new player in the oil market ? the Federal Reserve,’’ Mr.
Yergin said.
“Not because it wants to push up oil prices, but as a consequence of its lowering interest rates to stimulate the U.S. economy.
’’ How much further will the dollar plunge? The consensus is that it has a way to go, in part because China and other Asian exporters are still buying dollars to suppress the value of their own currencies, so they can continue pumping out exports to the United States.
The fear of some economists is that, as the dollar declines, there could be a panic sell-off.
But most experts doubt such a panic would occur, because it would be in nobody’s interest, least of all investors who are holding dollar-based investments.
For all its problems, the dollar is still widely seen as the world’s safest currency.
The Bush administration wants a stronger currency.
Or does it?