The dollar rises and falls based on the strength of our economy — and the confidence investors have in its future. With other economies in Asia and South America growing more rapidly and the outlook for the U.S economy slowing, the dollar has been weakening.
What does the dollar decline mean for U.S. consumers, and what happens if the dollar keeps sliding?
Americans buy more stuff from other countries than we sell to them, the weaker dollar raises the net cost for a typical American’s shopping basket. Paying more each year for the same basket of goods is the textbook definition of inflation. So a weak dollar could push U.S. inflation higher and become a tax on the already overburdened consumer.
A weak currency also comes with an important trade benefit. It makes everything based on that currency much cheaper in the global marketplace. That tends to help American companies sell more of their products around the world, which boosts the U.S. economy. That, in turn, should create more jobs. In theory, all that expanded economic activity should help re-strengthen the dollar.
A few dollar based charts have alerted me to what’s really driving the overall market and oil higher. Notice the inverse relationship that the dollar and the overall market have taken on.
As economic recovery hopes grow, risk aversion trades will diminish, which could also lead to U.S. dollar weakness and higher inverse markets. Thank you for reading.
What does the dollar decline mean for U.S. consumers, and what happens if the dollar keeps sliding?
Americans buy more stuff from other countries than we sell to them, the weaker dollar raises the net cost for a typical American’s shopping basket. Paying more each year for the same basket of goods is the textbook definition of inflation. So a weak dollar could push U.S. inflation higher and become a tax on the already overburdened consumer.
A weak currency also comes with an important trade benefit. It makes everything based on that currency much cheaper in the global marketplace. That tends to help American companies sell more of their products around the world, which boosts the U.S. economy. That, in turn, should create more jobs. In theory, all that expanded economic activity should help re-strengthen the dollar.
A few dollar based charts have alerted me to what’s really driving the overall market and oil higher. Notice the inverse relationship that the dollar and the overall market have taken on.
The dollar and oil have an inverse relationship.
