Analysts Mixed On Whether Strong U.S. Dollar Is Positive Or Negative

Mar 12, 2015
Originally published on March 12, 2015 5:43 pm
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AUDIE CORNISH, HOST:

The U.S. dollar is on a roll these days. It's risen strongly against most major currencies over the past several months, but it looks especially pumped up compared to the euro. Less than a year ago, it took almost a dollar and 40 cents to buy one euro. Today, a euro costs just a dollar and six cents, its lowest point in 12 years. NPR's economics correspondent John Ydstie joins us to talk about what's going on. Hey there, John.

JOHN YDSTIE, BYLINE: Hi, Audie.

CORNISH: First of all, why is this happening? What's causing the dollar to strengthen?

YDSTIE: The big reason is that the U.S. economy is doing better than most of the other major economies of the world. China's growth rate is slowing. Europe is barely growing at all, and same with Japan's economy. Meanwhile, the U.S. economy is rapidly creating jobs and growing at a pretty healthy rate. That means more investors around the world are ready to put money in the U.S. - maybe buy a company or buy U.S. stocks. To do that, you need dollars, and when there's more demand for dollars, the price and value of the dollar goes up. And then there's the Central Bank policy that's having an impact.

CORNISH: Right. The European Central Bank actually is pumping more money into its economy, right? That's their version of quantitative easing.

YDSTIE: Right. And that's creating downward pressure on European interest rates. Meanwhile, the Federal Reserve is getting closer to raising U.S. interest rates. Again, global investors are attracted by the higher returns on U.S. bonds, and they have to buy dollars to invest in them. That adds to the dollar's strength.

CORNISH: So what's the effect of the stronger dollar on the U.S. economy as a whole and, of course, for U.S. consumers?

YDSTIE: Well, there are positives and negatives. The big negative, of course, is that U.S. exporters have a harder time selling their products because they're priced in dollars. That hurts their profits, and that's been reflected in recent days in major U.S. stock indexes, which have fallen. They recovered a little bit today. Most of the big companies on those indexes have foreign sales. And if their profits fall, their stocks are less attractive. And fewer profits will trim job creation at those companies and hurt overall U.S. growth. So that's a major negative.

CORNISH: You've given us the negatives here, John. I mean, what's the good news? What are the positive effects?

YDSTIE: Well, imports are less expensive. So if you are a U.S. business that imports some of its raw materials or components, those are now cheaper. If you're an American consumer who buys imported clothing or electronics or automobiles, you're going to get more for your dollar. Also, a strong dollar puts a downward pressure on oil prices, so it contributes to lower gasoline prices, too.

CORNISH: So on balance here, do the positives outweigh the negatives?

YDSTIE: Well, if the dollar is strong just because the rest of the world is experiencing weakness, then maybe it's not such a good thing. And there's the difference of opinion about whether it's a healthy U.S. economy that's pumping up the dollar or simply weakness abroad. Historically, a strong dollar has been associated with a strong U.S. economy, but it's not clear yet whether that will be the case this time.

CORNISH: That's NPR's economics correspondent John Ydstie. John, thanks so much.

YDSTIE: You're welcome, Audie. Transcript provided by NPR, Copyright NPR.