The strength of the U.S. dollar allowed Americans to consume foreign goods and travel to exotic lands. Now the dollar is at year-plus lows. If it stays this way, it could change our economy and which exchange traded funds (ETFs) we choose.
There could be some big motivation for keeping the dollar weak.
A large portion of American companies do big business overseas, so profits will in large part come from the strength of foreign currency as the U.S. dollar withers. All of a sudden, these multi-national corporations are looking at emerging markets as a source of income instead of places where cheap labor can be had, explains Gary Gordon for ETF Expert.
Although the U.S government would never admit that, there are not any actions or words to indicate urgency in reversing this trend. The biggest risk to this cycle continuing is that it could lead to a lack of interest in foreign investment. (Why foreign countries want a strong dollar).
For now, the Federal Reserve doesn’t see importers passing along their higher costs to consumers in the current environment, which is one reason that traditional inflation may remain subdued. Market-based wealth is dependent upon a weaker dollar, the U.S. economy is relying on the stabilization of the U.S. dollar. Is there a happy medium?
For more stories about the U.S .Dollar, visit our currency category.
- PowerShares DB U.S. Dollar Index Bullish (NYSEArca: UUP): down 9.2% year-to-date
- PowerShares DB U.S. Dollar Index Bearish (NYSEArca: UDN): up 8.4% year-to-date
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.