The U.S. Dollar is at it's highest level since June 2010 and has rallied approximately 10% from the spring this year. The appreciation of the dollar comes with some major implications globally and within the economy.
Due to a stronger dollar, import prices will be cheaper. Since the overall wage growth is still low, this rise in value will help purchasing power of consumers.
Competing firms in Europe and other countries who have not seen an appreciation in their currency, will have an export advantage.
Since commodities are priced in dollars, a stronger dollar translates into lower commodity prices. Due to the appreciation the real rates of interest and inflation will modestly rise also. Historically, higher real rates have further hampered commodity returns as they raise the opportunity cost of holding an asset that produces no income.
Although the value of the U.S. dollar is appreciating it is still only as strong as it was in 2006. It is still down 30% compared to its value in 2001.
Read More: http://ow.ly/E2fD3
Due to a stronger dollar, import prices will be cheaper. Since the overall wage growth is still low, this rise in value will help purchasing power of consumers.
Competing firms in Europe and other countries who have not seen an appreciation in their currency, will have an export advantage.
Since commodities are priced in dollars, a stronger dollar translates into lower commodity prices. Due to the appreciation the real rates of interest and inflation will modestly rise also. Historically, higher real rates have further hampered commodity returns as they raise the opportunity cost of holding an asset that produces no income.
Although the value of the U.S. dollar is appreciating it is still only as strong as it was in 2006. It is still down 30% compared to its value in 2001.
Read More: http://ow.ly/E2fD3
I really am excited to see what happens in the US in the next few years because it really seems like the rest of the world or at least Europe is struggling to pull themselves out of this financial crisis. Us seeming to be a leader in recovery could possibly put us in a good spot for the future because people will look to us to help them.
ReplyDeleteSince the dollar is strong right now it will be interesting to see how much importation the U.S. starts to do. If they start importing a lot because of the good exchange rate then there will be an influx of dollars in foreign economies. Thus, the value of the dollar should depreciate while at the same time help the economies (those having troubles getting out of the financial crisis) who are in trouble by purchasing their goods.
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