As the year pushes ahead, economists, politicians and analysts have been busy forecasting the rest of 2015. The decline of oil prices, economic performance and the strengthening dollar have all dominated business news commentary. Of particular importance is the strengthening dollar. Is this a positive or a negative for the economy?
Well, a strong dollar, compared to a basket of other currencies, is a double-edged sword. On the good side of things, a strong dollar has more buying power. Consumers can get more for their money and have a little left over for non-discretionary spending. Also, foreign goods are cheaper, which can help companies that rely on imports. Lastly, a strong dollar gives us insight into how people view the U.S. economy. A strong dollar means more people are buying dollars, which tells us they see the U.S. as more secure and economically sound than other countries.
On the negative side, an appreciating dollar can have significant unfavorable impacts. Sales of U.S. goods in foreign markets can be expected to decline since American goods become more expensive for foreigners to buy. Imagine the impact this has on American companies that generate much of their revenue from foreign sales. Less revenue means that fewer goods are produced and decreasing production could mean fewer jobs.
clearTREND research produced by our firm in Appleton indicates upward trends in most U.S. stocks as well as most U.S. sectors. U.S. energy and emerging markets have been trending downward. Our U.S. Economic Health Index shows that 71 percent of U.S. sectors are expanding.
“A rising dollar may also indicate an expectation of rising interest rates,” says Alex Haas, financial advisor of the Appleton Group. “With the Fed expected to begin raising short term interest rates, the rate of economic growth in the U.S. may begin to slow down.”
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