10 17 2017 | by Victor Xing | Capital Markets
09 20 2017 | by Victor Xing | Central Banks
QE’s distributional effects a political liability
04 18 2017 | by Victor Xing | Capital Markets
Persistent low volatility threatens active fund managers
02 17 2017 | by Victor Xing | Economics
Looming risks through the prism of bifurcated housing market
01 11 2017 | by Victor Xing | Economics
Financial risk contagion: China’s capital outflow
12 22 2016 | by Victor Xing | Economics
November PCE: dollar strength weighed on goods inflation
12 14 2016 | by Victor Xing | Central Banks
A less-hawkish interpretation of the December FOMC
12 02 2016 | by Victor Xing | Economics
November Payrolls and Governor Powell on risk management
11 15 2016 | by Victor Xing | Central Banks
November FOMC minutes and debates behind guidance change
11 04 2016 | by Victor Xing | Economics
October Payrolls: decent data with stronger wage growth
11 06 2015 | by Victor Xing | Economics
Is dollar strength good or bad for the US economy?
Dollar strength has both positive and negative effects on the U.S. economy.
Benefits of strong dollar
Stronger dollar increases purchasing power of U.S. consumers and businesses when paying for foreign goods and services. For example, I am currently working with an excellent Montreal-based design agency for my corporate website, and USDCAD at 1.3304 really helps my budget and burn-rate.
A friend of mine recently went to Japan, and the exchange rate also reduced her travel expenditure. She was able to dine at finer restaurants and stay at fancy hotels without changes to her budget.
Negative effects of a strong U.S. dollar
Stronger dollar makes U.S. goods and services less competitive (again referring to my decision to work with a Canadian web designer), and this directly impacts employment conditions for workers and businesses exposed to foreign trade and service contracts.
In the below graph, the blue line represents total U.S. export, and the gold line refers to Federal Reserve’s preferred measure of dollar valuation (). The red line represents Core CPI (Inflation ex-Food/Energy); even though stronger dollar push down durable goods prices (Core Goods), their effect sometimes pass-through into Core Services CPI and weigh on overall inflation. What the red line doesn’t show is how much Core Services (rent, etc) have risen in recent years, and the aggregate inflation index has been weighed down by soft import prices and the decline in energy cost.
Therefore, aside from punishing U.S. manufacturing sector, stronger dollar can also push down realized inflation and inflation expectations, therefore affecting Federal Reserve’s policy reaction function (more hesitant to hike rates)
Next article11 06 2015 | by Victor Xing | Economics