Is the US Dollar Weakening?

Is the US Dollar Weakening?

Yes, in a sense, the dollar has begun weakening two weeks ago, and the trend has continued. That’s why we’ve seen a slight recovery in gold prices, and why commodities like corn and cattle are more expensive right now, not to mention the rising price of milk and eggs. But in the broader sense, when you look at the world economy, the US dollar is strong.

It’s strong in relation to Asian currencies like the yuan, which was recently deflated on purpose by the Chinese government in order to give a boost to their exports. The dollar is also strong when compared to the yen, although the yen is fighting back.
The situation in Japan is a unique one, where a healthy stock market belies a struggling consumer economy and aging workforce.

The US dollar is also strong in Europe, where the Euro faces very real threats to its existence that the dollar simply won’t ever have to deal with. Our way of organizing the states, along with a unified Federal currency, means that there’s no risk of the sort of situation that is currently happening in the Eurozone.

Plainly put, they have a huge mess on their hands. And although their currencies tend to be worth more in relation to the US dollar, their problem is one of systemic instability and almost-constant crisis over everything from unemployment rates to housing to immigration. The Eurozone is a paper tiger when it comes to the value of their currency, and right now the tail is on fire.

Russia is a mess, and that’s putting it politely. Falling oil prices hit that country very hard, and they’ve been struggling to keep afloat. Massive cutbacks in government spending, combined with general poverty and failing businesses means that Russia is flailing. They have enough money to wage wars regionally, but what had been a global superpower is now a regional power at best. Their economy is in shambles, and the Russian people are hurting for work.

Even in the Americas we see a stronger US dollar than the rest of the continent’s currencies. The Canadian dollar has struggled lately, as the country deals with its own unemployment and growth issues. In Mexico, the country is fighting to maintain order, and investment deals and drilling is leaving their gulf waters. The long-term prospect there is not good.

When we look at Southern and Central America, we see a lot of the same problems as we do in Mexico. These problems are keeping the value of their currency artificially depressed. In Brazil, one of the largest emerging markets, corruption there is so rampant that the national oil and gas company is being sued by American firms for their most recent bribery scandal. In Venezuela, supplies of oil are keeping the country afloat, but the broader economy is in shambles.

Within the US is where we see the effects of the weaker dollar most visibly. As I already said, gold prices have rebounded slightly and our commodities are growing more expensive. But it’s important to put it in the perspective of the world as a whole, and when we look at the big picture America is actually very strong right now.

The worst of our recession is over, and while jobs are still soft and consumer spending is weaker than we’d like to see, we’re still doing much better than the rest of the world as a whole.
Published on Oct 17, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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