Tags: Strong | Dollar | US | Economic | Growth

WSJ: Strong Dollar May Crimp US Economic Growth

By    |   Wednesday, 28 Sep 2011 08:11 AM

The dollar has been on a bull run recently, with the Dollar Index that measures the greenback against six major currencies jumping 5 percent in the last month. The tendency among many commentators is to view the dollar’s strength as a positive reflection the position of the U.S. economy. But it’s not that simple, The Wall Street Journal points out.

While a rising dollar does dampen inflation by making imports cheaper, it also hampers our economic growth by making exports more expensive. And the dollar’s ascent hurts the profits of U.S. multinational companies, as the foreign currency they earn abroad is worth less when they convert it to dollars.

The dollar is benefiting now from Europe’s debt crisis and concern about the sustainability of global economic growth. That worry has sent investors fleeing to the dollar as a safe haven. And the move may not be over.

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(Getty Images photo)
Nomura Securities, for example, predicts the euro will slide to $1.30 by Dec. 31, down 5 percent from recent levels, according to The Journal.

To be sure, there is no guarantee the dollar will keep climbing, and even if it does, you can expect brief periods of weakness, such as Monday and Tuesday.

“There are ideas that Europe is going to get their act together, that they’re going to have some new, bolder initiative,” Marc Chandler, chief currency strategist at Brown Brothers Harriman, tells Bloomberg in explaining the dollar’s decline Tuesday.

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The dollar has been on a bull run recently, with the Dollar Index that measures the greenback against six major currencies jumping 5 percent in the last month. The tendency among many commentators is to view the dollar s strength as a positive reflection the position of the...
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2011-11-28
Wednesday, 28 Sep 2011 08:11 AM
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