If you’ve managed finances for a long time, the chances are that you already know the value of the dollar. But what you may not know is what it means when the dollar is stronger or weaker. A weak dollar affects various sectors of economies globally such as manufacturing, forex market, energy industry, and many others. This is what the post is going to focus on.
What Does The Weak Dollar Mean?
A weak dollar implies that the value of a dollar in terms of goods and services bought is decreasing to the amount of one or more of other foreign currencies. The following factors can contribute to the weakness of the dollar.
• Unemployment rates
• Interest rate policy
• Deceleration or acceleration of a domestic economic growth
• Tax reform and tax policy
• Overall market sentiment
• Foreign trade policy
• Demand and supply for imported and exported goods and services
• Gross domestic product forecasts
• Trade regulations, market fluctuations, and foreign countries’ economic growth
All the mentioned factors are interconnected in one way or another and influence the strength or weakness of the dollar.
Is A Weak Dollar Terrible Or Good?
A weak dollar has enormous economic implications. For instance, if the USA has some trade partnerships with a country that’s experiencing a weak currency cycle, it can lead to lower prices for the country’s products and services. Therefore, the country’s domestic manufacturers will find it difficult to compete with reduced rates.
On the other hand, if the foreign country’s currency is more potent while the dollar is faltering, this results in higher prices for imported goods. The higher rates are passed to the consumers. Also, visiting a foreign country can be more expensive because the dollar cannot stretch overseas.
When the dollar is weak, goods exported from the United States become cheaper, making it easier for those companies that sell abroad to remain vibrant in the market. Some countries can even intentionally devalue their currencies to be more competitive economically, especially in times of recession or downturn.
The Relationship Between A Weak Dollar And Consumers
Besides the economic concern, you should also focus on the purchase of goods that are susceptible to the weak dollar. For instance, if a dollar loses 20% of its value, and within the same timelines, food prices and gas, thanks to inflation, rises by 20% then, it means that due to the weak dollar of your money, your money has to work 40% harder to buy the same amount of gas or food.
How Can I Combat Weak Dollar
Even though the consumer has no power over the dollar’s strength and weakness, there are still some mechanisms that can downplay the impacts of the dollar’s stability. First, one should increase savings so that he or she can exploit the rising rate environment. A CD account or high yield saving accounts is an attractive option for investing cash savings when rates rise.
The other thing focuses on your spending and budget. Spend on commodities that their prices increase with the weak dollar and eliminate non-essential expenditures.
Lastly, attach your investments with tangible assets such as real estate. These assets tend to hold investments against currency value loss.