What a weak dollar means in 2018

U.S. consumers may soon begin to feel some pain from the dollar's downturn, although the recent slide in the world's main reserve currency isn't bad news for everyone in America.

The greenback has dropped eight percent in 2017 and is on track for its first annual decline in five years. It weakened after U.S. tax changes aimed at spurring growth were slow to materialize and lackluster inflation weighed on the longer-term trajectory for interest rates even as the Federal Reserve tightened policy.

A more upbeat picture in other parts of the world such as Europe also has weighed on the U.S. currency, and many analysts predict further weakness ahead.

For households, that means the earlier benefits of currency strength are likely to dissipate. On the flipside, local businesses could gain, especially if they're exporters, and that could boost the economy as a whole.

Here are some of the ways that a softer dollar might have an impact:

l A boost for exports - At the turn of last year, the Federal Reserve's trade-weighted dollar index showed that the U.S. currency had appreciated 26 percent since mid-2014.

The trade-weighted greenback since has fallen more than six percent, making it less expensive for overseas consumers to buy U.S. goods - and rendering local products more appealing to domestic buyers.

l Costlier imports - While European consumers may be loading up on American imports, overseas goods have become more costly for people in the United States to buy.

But add to that tax cuts and the possibility of rising wages, and the sting may not be so bad after all. While higher import prices are a drag for consumers, 'the overall strength of the economy negates that,” said Credit Agricole analyst Vassili Serebriakov.

l Foreign vacations - If you're an American who actually is going abroad to Europe or elsewhere, there's no denying that your spending power will be reduced in many locales.

The dollar is predicted to decline against 12 of its 16 major peers this year, so vacationers may end up being more selective when it comes to international destinations or consider local options instead.

The weaker dollar, conversely, may attract foreign tourists to the United States.

l Higher gas prices - Any plans Americans might have for a U.S. road trip, and other household expenditures, unfortunately could be curtailed by more expensive auto fuel.

Many natural resources such as oil, metals and agricultural commodities are denominated in dollars, so when the currency declines, prices for such materials typically rise. West Texas Intermediate crude has climbed around 11 percent this year, while gasoline futures are up about 8 percent.