1. The strength of the U.S. dollar continues to surge in 2015 and is the strongest it’s been in more than 11 years, increasing by 24 percent since June. What has attributed to the recent increase in the strength of the dollar?
It is amazing that the dollar continues to gain strength even though many indicators are against the dollar – trade deficits, indebtedness, the Federal Reserve printing money, and competing currencies should have weakened the dollar. Some things that support the dollar are the strength of the U.S. economy compared to the rest of the world and the strength of our businesses in gaining footholds around the world selling products. It also helps that we are once again a net exporter of oil. This creates demand for our dollar and strengthens it compared to Yen, Euro and other currencies.
The stronger dollar means cheaper goods imported and more costly exports. Presently with exchange rates becoming more in favor of the dollar, our dollar takes more foreign currency to buy so any profits made overseas by U.S. corporations are worth less in dollar terms. You can see many international or multinational companies issuing profit warnings due to the strengthening dollar. This may cause layoffs at home and other cost-cutting initiatives, which may negatively impact our economic growth.
3. How does the strongest dollar in over a decade impact global financial markets and our trade relationships with foreign nations?
Trade relationships are not really impacted much by currency valuation, unless you are seen as manipulating your currency. This is the case with the Chinese and the Renminbi – the US government has accused the Chinese government of manipulating this currency for years. That is one reason why many countries will not trade in currency other than U.S. dollar or Euro and Yen. The dollar is almost expected to be strong in the world so it really does not hurt us at all.
4. Is there a potential downside to the dollar’s strength, or a point when it may begin to have negative impacts?
If the dollar trades too high then you will see less exports, less sales of U.S. goods since we will not compete with other countries and even more production being shifted overseas and outsourced. With all the economic problems in the world, I do not see much chance of our dollar being too strong in the near future.
5. How can the future of the dollar be predicted, and where do you see the strength of the dollar going in the remainder of 2015?
If I could predict the future of the dollar, I would be trading in foreign currencies right now (smile). I have to believe that things will not change much for the remainder of the year. I look toward 2018 and the new elections for president. Depending on what happens in that election and with economics in the meantime, we could see some drama at that point in the currency markets.
Stephen Paulone, Ph.D. is the Director of Graduate Business Programs offered through the Malcolm Baldrige School of Business at Post University. He has more than 25 years of experience in manufacturing, marketing, and finance, and has held such positions as marketing manager, manager of new product development, marketing program manager and finance director.