10 Reasons Why the Strength of the Dollar Matters

Whether a strong dollar is a good or bad change for the economy all depends on your perspective.  Different industries do better under different conditions.  Here are 10 reasons why the strength of the US Dollar matters.

Strong Dollar

1. Imports cost less when the dollar is strong which reduces costs of good purchased from overseas.  Domestic manufactures who sell the majority of their products in The United States like a strong dollar so they can buy their supplies cheaper overseas and still sell at the same price here, thus increasing their profit margins.  At the same time certain industries like domestic autos can be hurt as buyers tend to turn to cheaper imports rather than cars made in Detroit.
2. US consumers benefit by being able to buy foreign made products cheaper with a stronger dollar and cheaper imports.
3. Exports cost more to foreign buyers when the dollar is strong which decreases exports.  Domestic manufacturers who sell a large percentage of their goods overseas are hurt by a strong dollar.
4. Having a strong dollar when traveling overseas allows you to buy more with the same amount of dollars.  In other words, you can spend less to get the same thing when the dollar is strong.
5. A strong dollar increases foreign investments in the US as foreign investors chase strength.  This allows the government to pay less interest (lower yields) on newly issued debt.  With lower interest rates businesses can pay less for the money they borrow and so do individuals in the form of lower home mortgage rates.

Weak Dollar

1. A weak dollar makes buying foreign made goods such as cars, computers and TVs more expensive to US consumers since it takes more dollars to purchase goods originally prices in foreign currencies.
2. A weak dollar can be good for domestic manufacturers who sell their goods overseas.  Their products end up being cheaper than their foreign competitors' products to buyers overseas and can be a trigger to increase sales.
3. The dollar and oil tend to have a negative correlation meaning a weaker dollar usually produces higher oil prices and vice versa.  Since oil trades in dollars a weak dollar allows foreign buyers to pay more in dollars for each contract while not increasing the true cost in their own currency.  Global economic conditions that affect supply and demand and alter this relationship.
4. The US tourism industry benefits with a weak dollar as foreign travelers can vacation in the US cheaper since their currencies buy more dollars.
5. A weak dollar slows foreign investments in the US and forces the government to pay a higher rate of interest (higher yields) on newly issued debt.  With higher interest rates businesses have to pay more for the money they borrow and so do individuals in the form of higher home mortgage rates.