What You Should Know About A Strong US Dollar
Flipping through the news on the tv, the finance section of the New York Times, or newsfeed on your Twitter you probably have seen headlines related to the strong dollar. What this means is that the US Dollar has appreciated in value vs most other currencies. So if you went to Europe now your dollar would buy a lot more than it did a year ago. The USD has almost entered parity of a 1 to 1 exchange rate versus the Euro. The main drivers of this are the state of the US economy vs the rest of the world.
Because what’s great for American tourists isn’t great for everyone, and currency strength is more than a simple proxy for a country’s economic prowess. Though the greenback’s strength does reflect the U.S.’ solid fundamentals — low unemployment, strong trade balance figures and an improving federal balance sheet — there is something else at work here.
The article states there is a world of doves. Much like a bull or a bear market when it comes to monetary policy there are hawks and doves. A dove favors lower central bank rates which might trigger higher inflation and a hawk favors higher rates to combat inflation. The lower the central bank rates the more interesting companies are to borrow money which increases growth. Since the US economy is finally looking on the up and up and the rest of the world continues to struggle and have lowered interest rates even more this makes for a stronger US dollar. The US central bank has a better return than that of many European countries.
See more about doves, hawks, and monetary policy.
About Shaun Archer Tatum Shaun works in corporate finance in New York City. He has done financial consulting for several start-ups and has worked at several Fortune 500 companies. He has contributed several finance/investing articles on Seeking Alpha which have been published on Yahoo! Finance.