With the counter effects of Brexit on the economy, consumers are starting to worry about the future of the US dollar. Is it getting stronger? And is this a good thing or a bad thing? How will it affect the economy? And the exchange rate? These are questions that are one the mind of a lot of consumers, both in the US and worldwide.
The value of the US dollar is measured by foreign exchange reserves, Treasury notes, and exchange rates. Foreign exchange rates are the amount of dollars held by foreign countries. Of these three methods, the most common is the exchange rate. All three of these methods have shown an increase in the US dollar over the last 5 years. This is due to the fact that both Japan and China are still purchasing the USD to control their currencies, thus lowering their export costs.. Also the economic reform in China has led to slower economic growth in 2015; it pushed investors back to the USD. And finally, Forex traders are reaping the benefits of higher Federal funds rate as the interest rate in Europe has been on a steady decline. Use the best trading tools to ensure you are getting the best information – one of my favourites is right here from Trusted Binary Reviews.
So is this good news for the United States? Or will it have a negative effect on the US economy?
The answer is that it is both good and bad. An increase in the USD will be beneficial for those US businesses that export their goods. However, this will increase the price of these goods thus making them less appealing to overseas markets. This has already had a negative effect on the US manufacturing index as in December of 2015 it hit its lowest level since June of 2009.
With the international chaos over the last 2 years, the US has once again become the pillar of economic stability. Brexit has caused the British pound to plummet to an all-time 31 year low while the value of the US dollar has steadily increased as major investors are turning to the stability of the USD versus other currencies. There was a 9% increase in the US from mid 2011 until 2015. However, in the last two years there has been an overwhelming increase an additional 20%
In order to counteract an increase in overseas prices on US goods, a lot of US manufacturers and businesses are looking to increase their overall productivity by drastically cutting down on their workforces and also investing in cheaper methods of export, production and even technology. As a result, of the price increase and lack of overseas sales due to this price increase, United States business have suffered a 2.6% decrease in revenue. In other words, larger US businesses earned a great deal less from overseas sales after converting the foreign currency back to US dollars.
Going forward, the indices in the value of the USD poses some daunting challenges for US based businesses. As long as the dollar keeps increasing, it will depress the rate of growth of the US economy. However, for those companies that export to the United States will be able to lower the price thus causing US companies to suffer and lose market shares both in the US and overseas. This will then result in a loss of sales, which will then snowball into an increase in unemployment.
A decrease in exports compounded with an increase in imports will result in a higher trade deficit. This means that as Americans are purchasing items from overseas companies due to competitive prices, the cost of living will increase. This makes it harder to generate new jobs for Americans as are goods and services are now being produced overseas. This will especially affect the working class. However, wealthier US residents will now be able to travel aboard thus increasing the value of the US dollar overseas.
Lastly, it should be noted that the increase in the USD is not to the fact that American business is booming, but rather it is due to the fact that economy of other nations is suffering. A great many countries are counting on the US dollar to increase in order to benefit their losses. A lot rides on the impending US Presidential election? Will the USD continue to rise? Will the deficit increase to dangerously high rates? Only time will tell, but as of now, the increase in the US Dollar has a positive effect on the global economy, but at the same time it poses a rather negative effect on the home front.