The value of U.S. dollar sank to a 15-month low against other major foreign currencies this week, depressed by strong economic reports out of Asia, and worries about high unemployment and persistently low interest rates in the U.S.

Most people don't bother to think about how strong or weak the U.S. dollar is until they start planning a trip overseas. But a weak dollar can affect prices right here at home, on everything from how much you pay at the pump to all those foreign-made gifts you'll be buying this holiday season.

When the dollar is strong, U.S. consumers benefit because it lowers the price of products made in other countries. (It takes fewer dollars to buy the same products, driving down the total cost.)

So a strong U.S. dollar helps to keep inflation in check. A strong dollar also allows you to buy more for your money when traveling overseas.

But when the dollar's weak, you get the opposite effect. Now it takes more dollars to buy the same goods from overseas companies, driving up prices for U.S. consumers. And a weak dollar means overseas vacations will be lot more expensive.

Gas and oil prices in particular have been affected by the weak dollar, because foreign countries with stronger currencies can buy more oil with fewer dollars. The lower cost is boosting overseas demand for oil -- particularly in Asia, where the economy is picking up steam. (Stronger demand cuts into supply, so oil producers charge more.) And since oil is traded in U.S. dollars, oil companies typically raise prices when the dollar is weak to make up for the loss in value.

So ... strong dollar good, weak dollar bad? Not so fast.

A weak dollar can actually help the U.S. economy by making American goods and services cheaper for overseas buyers. In turn, growing demand for products that are "Made in the U.S.A" helps to create much-needed jobs. And the weak dollar makes travel to the U.S. more affordable, tempting more foreign travelers to spend their money here.

Generally, though, a stronger U.S. dollar is more desirable because it helps to stabilize costs. If the dollar remains weak, or continues to drop in value, it could trigger inflation. That would be a blow to the U.S. economic recovery, and make it even tougher on U.S. consumers who are already struggling to keep up with higher prices.

Terri Cullen is an award-winning financial journalist. She was one of the original team of editors who helped to launch The Wall Street Journal Online. Terri is also the author of "The Wall Street Journal. Complete Identity Theft Guidebook." Read her bio to learn more about her.

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