Thursday, 7 May 2015

How a strong dollar ambushed U.S. Economy

In World Economy News 07/05/2015

The almighty dollar deserves quite a bit of blame for the lowly state of the U.S economy early in the year.
From July 2014 through March 2015, the value of the dollar jumped 14% in trade-weighted terms. That made U.S.-made goods and services more expensive around the world at a time when many other countries were also struggling to cope with slowing economies of their own.
The result: American exports fell 5% over the same 12-month span, the biggest year-over-year decline since late 2009 as the U.S. was emerging from the Great Recession.
The stronger dollar has also contributed to a decline in U.S. corporate profits and spurred manufacturers to scale back production and hiring.
With exports down sharply in the first quarter, the U.S. economy is likely to show contraction when the government revises gross domestic product later in the month. Initially, the government had said the economy grew 0.2% in the first three months of the year.
An unusually harsh winter was probably the biggest downer, but the strong dollar also played the role of villain.
The rise in the dollar appears to have halted, however, and the global economy seems to be recovering. If so, that could brighten the U.S. trade picture later in the year and trigger a rebound in exports.
The dollar has surged in value owing to a number of factors, including the expectation that the Federal Reserve will raise interest rates later this year. Some investors bought the U.S. currency to benefit from the dollar’s appreciation. Other sought to invest in a U.S. economy that was growing faster than the rest of the world. And still others wanted a place to safely park their money in an uncertain world.

Source: MarketWatch