The Dollars Summer Dip

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What's going on?

The US dollar had a rough July, but its weakness helped push US stocks to new record highs! (tweet this)

What does this mean?

The US dollar fell almost 3% versus other major currencies during the month of July, bringing its year-to-date loss to almost 10% a significant fall. A big part of the problem stems from the large increase in the value of the dollar towards the end of last year: following the presidential election, investors became much more optimistic that new government policies, like tax reform and big spending plans, would support economic growth (international investors tend to move money into an economy that it thinks will grow more quickly, thus pushing up the value of its currency). But, so far, the US economy is growing at roughly the same pace it has for the past several years and recent weakness in the dollar suggests investors are skeptical that it will speed up.


In addition, other regions, notably Europe, are doing better than expected and growing more quickly than the US. Consequently, the euro is up about 12% versus the dollar this year.

Why should I care?

For markets: A weaker dollar helps push up US stock prices.

Most big US companies have significant international operations and the weaker dollar means their overseas earnings are worth more when translated back to dollars thus boosting US stock prices. Also, US exporters, like Boeing, find it easier to sell their products abroad because its now cheaper for foreign buyers to purchase products denominated in US dollars.


For you personally: A weaker currency makes things more expensive.

For one, travelling abroad becomes more expensive. But it also increases the cost of imported goods, which tends to flow through to the rest of the economy (even if the finished product is made in the US, the components or raw materials are often imported). As such, a lower dollar tends to push up inflation which may begin happening in the US soon.

Originally posted as part of the Finimize daily email.

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