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US Dollar and the American economy

Exchange RateThe value of the US dollar has shown a considerable improvement in last one year . US dollar index ,the ultimate measure of dollar value has shown an increase of about 20% in last one year. According to the latest statistics , US dollar currently at its highest position since year 2002-03.The most important reason for the latest surge is strong US economic growth  as compared to other world major economies .

 

Currently US dollar is rising against all the major currencies of the world such as Euro,GB Pound and Japanese yen.Now Euro/dollar rate stands at 1.05 dollar per Euro.Experts believe that this gradual rise in the value of the dollar will leave both positive and negative effects on the US economy.US dollar will affect the US economy in the following four important ways.

Dollar

Dollar and the US exports

Large US exporters such as Avon are feeling the heat of the surging dollar.Cosmetics,meat and poultry are the three most affected sectors  of the US economy from the strong dollar.When the value of dollar increases in the international market it makes the US products expensive for the foreign consumers,so it negatively affects the overall export sector of the country.Experts believe that further decline in exports will negatively affect the overall economy as now exporters will receive less orders from the foreign markets  compared to the past.

Strong dollar has already started affecting the employment ,as according to the latest figures, US manufacturing only hired 8000  employees in the month of February, as compared to the 18000 same month last year.

Cheap products for the consumers

American consumers will largely benefit from the rising value of the dollar.It is beneficial for them as it will make imported goods cheaper for them.It is expected that it will also surely decrease the inflation rate of the country.Clothing,auto-mobiles and electronics products will mainly benefit from the rising dollar.So this mean that it will also increase the purchasing power of the consumers,which is a very good thing for their wallets.It will also increase the consumer spending, which will leave a positive long term affect on the US economy.

Falling gold prices

There is a inverse relationship between the US dollar and the gold prices.It has been noted in the past that a falling dollar always pushes the prices of the gold up.Same is the case today,as it is expected that gold prices will further decline to $110 per ounce at the end of the year.It happens because falling dollar makes it cheaper for the consumers and investors.So when it becomes cheaper,investors invest more in the precious metal,which pushes its prices up.This is very good thing for the US gold consumers and also for the investors, who want to earn some bucks from the gold in the future.

US stocks and the US dollar

Most of the  economic experts agree on this point that there is a positive relationship between the US dollar and the US stocks.Although it is true that increasing value of the dollar affects the export potential of the large companies but they can recover their margins through using cheaper imported raw material. Some exports also believe that sometimes there is zero correlation between the US dollar and US stocks.

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About Emaad Qureshi